Oil Price Fundamental Weekly Forecast – Bulls Dealing with Refinery Demand Issues, Possible OPEC+ Output Hike

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished mixed last week with the U.S. market taking a weather-related hit late in the week that erased earlier gains. At the start of the new week on Monday, traders will be facing two key issues:  a gap in refinery demand and the possibility of a rise in OPEC+ supplies.

Last week, April WTI crude oil settled at $59.26, down $0.12 or -0.20% and April Brent crude oil finished at $62.91, up $0.48 or +0.76%.

Volatility could be another issue facing traders because many speculators were caught in a bull trap when sentiment shifted suddenly last Thursday. These are the traders who were reading the headlines and thinking the Arctic freeze gripping Texas would last forever. Meanwhile, professionals started booking profits as soon as the midday weather reports on Thursday showed a warming trend over the weekend and into next week.

The big question for those trapped on the wrong side is whether the professionals will let them out by fueling a retracement of the first sell-off, or will they continue to drive prices into support levels $2.00 to $3.00 lower.

How Will Refiners Respond to Expected Demand Gap?

With nearby futures reaching 13-month highs last week, driven by the historic freeze in U.S. southern states, the focus now shifts to the impact of these conditions on refiners after some reports showed as much as one-third of U.S. crude production was shut down.

According to ANZ Research, the lack of demand from Texan refiners will likely lead to builds in crude stocks over coming weeks, even though around 3.5 million barrels per day (bpd) of U.S. oil output has been shut.

Citi analysts said in a note that some U.S. refineries might bring forward about 500,000 bpd of maintenance work normally scheduled for the spring over next month, ahead of the summer driving season.

Look for Headlines Saying OPEC+ to Consider Increasing Output in April

OPEC+ oil producers are likely to ease curbs on supply after April given a recovery in prices, OPEC+ sources said and Reuters reported, although any increase in output will be modest as producers are wary of fresh setbacks in the battle against the pandemic.

An oil rally into a 13-month high to almost $64 per barrel (Brent) has boosted confidence among producers that the market could absorb more supply. Forecasters, including OPEC, are predicting a record rise in demand this year as vaccines are rolled out, despite current weakness.

This Week’s Focus

As mentioned earlier, we could see a two-sided trade depending on how the refiners respond to an expected drop in demand. There probably wasn’t any damage done to the Texas refineries when the cold weather shut down operators so we don’t expect to hear about any long-term repairs. However, there could be some delays in getting the refineries back on-line. Furthermore, some refiners may take early maintenance which could limit demand for crude oil, while cutting supply for gasoline.

We also expect to hear more about the OPEC+ plan to trim output cuts starting in April. The size of the increase in production cuts will likely hinge upon the continued success or the vaccination rollout and any signs of increased demand.

For a look at all of today’s economic events, check out our economic calendar.