On Friday, April 16, during early trading in the U.S., international oil prices once collectively fell back more than 1% from the daily high, with U.S. oil WTI falling below $63 and Brent returning below $67. The market is highly concerned about the production dynamics of the OPEC+ coalition of oil-producing countries led by Saudi Arabia and Russia from May.
Russian Deputy Prime Minister Novak said earlier that OPEC+ countries will gradually resume oil production from May to July this year, although he also added that the Russian Energy Ministry is ready to support restrictions on exports of oil products to boost the domestic market.
U.S. oil WTI hit a daily low of $62.84, down more than $1 or 1.6% from a daily high of $63.88, extending its daily decline to nearly 1%. Bunker oil hit a daily low of $66.47, down nearly $1 or 1.3% from a daily high of $67.37, extending its daily loss to 0.7%.
North American summer driving peak is coming, vaccines, stimulus consumption and travel rebound are expected to push up oil prices
Still, international oil prices remained near their nearly four-week highs since March 18, both accumulating a 6% gain this week and a sharp 30% rally so far this year. Analysis says this is mainly due to the expected improvement in demand for crude oil, the strong economic recovery in China and the United States to offset the hidden problems of the new crown virus surge.
Justin Smirk, senior economist at Westpac Australia, noted that a strong global economic recovery, OPEC+ production containment policies, and a cautious response to higher oil prices from U.S. oil producers are supporting the market, “with oil prices likely to rise to $70 per barrel before any meaningful pullback. “
The North American summer driving peak typically revolves around Memorial Day in the U.S. at the end of May, and traders are looking for a pickup in typical travel volumes from June to August this year, which typically benefits oil demand.
Stephen Innes, chief global market strategist at foreign exchange broker AxiCorp, then believes that this summer will mark the first increase in the number of miles driven on U.S. highways since the outbreak of the new crown epidemic, and that the U.S. summer driving rush could return to the busy levels seen during the same period in 2019.
Regina Mayor, global head of energy at KPMG, also said there are three major positive factors driving oil demand this summer and beyond. The first is the accelerating pace of vaccinations in the U.K. and U.S., for example, the second is continued government efforts to stimulate consumption, and the third is the retaliatory rebound of people’s suppressed travel demand in the post-epidemic era.
But she also warned that the “biggest risk” to an imbalanced oil market and depressed oil prices in the near term is how quickly OPEC+ will resume supply and how quickly Iranian crude exports will be unblocked, “remembering that there is still about 7 million barrels per day of oil supply waiting to come back into the market. “
OPEC+ Production Decision Becomes Short-Term Risk to Oil Market, Russia Plans to Maximize Crude Exports Monetization
The OPEC+ coalition of oil producers will meet on April 28, two weeks from now, to discuss production policy, after they plan to gradually increase collective production by 2 million bpd over the three months from May to July to meet demand. The Saudis not only emphasized a cautious stance, but also said that decisions will be more flexible, with some analysts speculating that OPEC+ could change its stance if U.S. shale oil producers take advantage of higher oil prices to increase production.
This week, both OPEC and the International Energy Agency IEA raised their expectations for global oil demand growth this year, feeling optimistic about strong demand in the second half of the year. the IEA even said that producers may need to increase supply by 2 million barrels per day to meet demand. All of this news is supporting higher oil prices, and the XLE Energy ETF is up nearly 30% this year, far outperforming the broader S&P 500 market.
However, there are concerns that the longer oil prices continue to rise, the more supply will return to the market, which combined with a sharp rebound in India, South America and Europe, will eventually lead to lower oil prices.
According to Platts (S&P Global Platts), the Russian government plans to approve an updated oil strategy through 2035 next week, arguing that tax breaks and investment in technology are key to supporting crude production through 2035, and that the country aims to increase oil exports before production peaks in 2027 to 2029, “focusing on maximizing the use of monetization of crude oil exports.”
Pavel Zavaln, head of the energy committee of Russia’s State Duma, the lower house of the Federal Assembly, said Wednesday that “everything that can be produced should be produced while there is still demand from buyers to monetize current reserves and resources, i.e., to maximize monetization of exports.” Russia’s Energy Ministry forecasts Brent oil prices at $68 per barrel in 2025 and $73 per barrel in 2035.
Russian Deputy Prime Minister Novak had also said on Tuesday, “There is no doubt that we should defend our national interests, where we have a competitive advantage.” This represents one of Russia’s main goals for 2021 to protect its share of the international oil market, according to the analysis.
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