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  • Crude oil markets avoided the sell-off seen in equity and bond markets on Thursday.
  • Focus remains on positive demand-side fundamentals, though will shift to OPEC+, who meet next week.

Crude oil markets largely managed to avoid the chaos seen in other asset classes (i.e. the sharp sell-offs seen in global bond and equity markets). At one point, front-month futures contracts for the American benchmark for sweet light crude (West Texas Intermediary or WTI) dropped as low as the $62.60s but has since recovered back to the mid-$63.00s, though has been unable to press onwards beyond session (and cycle) highs in the $63.70s. In the end, WTI finished Thursday’s trade flat at $63.45. Futures trade, which paused as it normally does at 22:00GMT, has just restarted again, as it usually does at 23:00GMT.

Driving the day

In terms of crude oil-specific fundamentals drivers on Thursday, there was not much. For the most part this week, focus has been on positive demand-side fundamentals (i.e. vaccine rollouts, more US fiscal stimulus incoming, dovish/accommodative Fed and other central banks). But focus is increasingly shifting onto the supply side; this week’s US crude oil inventory data showed surprise builds and there might me more US inventory builds ahead as oil refiners struggle to recover from recent US weather disruptions as quickly as oil extractors. Meanwhile, OPEC+ sources highlight divergent views in the cartel as to how much supply they should bring back online in April, if any. In the end, this is likely to largely be determined by how much of their 1M barrel per day in voluntary output cuts (in February and March) the Saudi Arabian’s choose to bring back in April; if the Saudis bring back the whole 1M barrels per day, this reduces the scope for how much the rest of the cartel can increase output.

There has also been some geopolitical news that might be taken as crude oil negative; US officials announced that US President Joe Biden held a call with Saudi King Salman where they discussed regional security, including the option for a diplomatic end to war in Yemen. However, the US reiterated its commitment to help Saudi Arabia defend itself against attacks from Iranian-aligned groups.

Reportedly, King Salman discussed with Iran’s “stability-disturbing behaviour” in the region with the US President but stressed that the country is keen to reach a political solution to the conflict in Yemen. If the war in Yemen can be brought to a halt and some kind of peace deal brokered, this would reduce some of the geopolitical risk premia priced into crude oil markets and would be a negative for crude oil markets. But it is likely to be a long, difficult road to any deal.  

 

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