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  • WTI has been bouncing between the $60.00-$61.00 levels on Wednesday as the OPEC+ meeting looms.
  • The latest official EIA inventory report was mixed, with surprise draws in oil and gasoline stocks but higher US production.

Front-month futures contracts for the American benchmark of sweet light crude oil, called WTI (which stands for West Texas Intermediary) have been swinging between the $60.00 and $61.00 levels on Wednesday, with the $60.00 having again provided a decent floor to the price action as has been the case since Monday’s US session. As of right now, WTI crude oil trades with modest gains of about 0.5% or 30 cents, but has been swinging from the red into the green and back again throughout the session and is likely to continue to do so in the absence of further fundamental catalysts.

Driving the day

US equity markets have been on the front foot since the open. Some market analysts are suggesting that a strong ADP national employment number (which estimated that 517K jobs were added to the economy in March) and a much better than expected Chicago PMI reading (of 66.3 in March, well above expectations for 60.7) is helping risk appetite. This could well be true; the former ought to reinforce the market’s confidence that Friday’s headline NFP number for the month of March is going to show strong job gains, while the latter adds upside risk to Thursday’s ISM Manufacturing PMI survey.

Alternatively, some are suggesting equity markets are enjoying a dose of “stimulus optimism” ahead of US President Joe Biden’s infrastructure spending announcement at 21:20BST, though others have argued that given the Biden administration plans to fund most of this spending with tax hikes on corporations and the rich, this is not an equity market positive. Others are suggesting that everyone is reading too much into the price action, which is nothing more than month/quarter-end buying.

Either way, higher US equity markets are giving crude oil a hand and have helped WTI recover from earlier lows around $60.00. News that France is to toughen lockdown restrictions by implementing a new nationwide lockdown which will include the closure of schools for four weeks has not dented sentiment in crude oil markets (market participants seem to have priced in lower oil demand growth in Europe this year).

Inventories

Crude oil markets saw only a very limited reaction to a mixed weekly EIA inventory numbers; in contrast to Tuesday’s API report, headline crude stocks posted a surprise draw of 876K barrels versus expectations for a 107K build. Similar to the API report, Gasoline stocks posted a large draw of over 1.7M barrels. However, Distillate stocks showed a much larger than expected build of over 2.5M barrels, Cushing stocks also built and US crude oil production rose by 0.1M barrels per day to 11.1M.

OPEC+ Meeting

One of the key themes for crude oil markets this week, aside from demand-side factors like Biden’s infrastructure announcement, the pandemic and key US data releases, is Thursday’s OPEC+ meeting. The OPEC+ Joint Technical Committee (JTC) met on Tuesday (this is a technical committee off delegates from OPEC+ nations whose job it is to analyse the situation in oil markets and sometimes provide policy recommendations to the oil ministers who make up the OPEC+ cartel). The JTC revised lower the OPEC+ estimate for oil demand growth in 2021; the cartel lowered its forecast for 2021 oil demand growth the 5.6M barrels per day from the 5.9M barrel per day forecast released in the OPEC monthly report just three weeks ago.

Note that the OPEC+ Joint Ministerial Monitoring Committee (whose job it is to monitor individual member state compliance to OPEC+’s output cut agreement) are currently meeting; compliance concerns are not higher on the agenda right now with compliance to the cuts currently at 124% (thanks to the Saudi’s 1M barrel per day in voluntary cuts).

The Saudis are pushing for a rollover in current production curbs through to the end of June and are reportedly also willing to extend their 1M barrel per day involuntary additional cuts for the same time period. However, Russia appears to have signalled that it wants to increase output. They are likely to face pushback from the likes of the Saudis and other cautious OPEC+ members, who will cite the recent downgrade in the oil demand growth forecast, lockdowns in Europe (and other parts of the world) and the recent pullback from highs in prices as reasons to be more cautious and rollover cuts. Markets expect that caution will prevail and OPEC+ and the Saudis will rollover current output cuts on Thursday.