WTI hits $50 for first time since Feb as OPEC+ agree on February production levels

• WTI hit $50 for the first time since February on OPEC+ headlines.
• Focus in the crude oil complex is likely to return to the demand side for the remainder of the week.

WTI has surged in recent trade, hitting the $50 per barrel mark for the first time since February 2020 on a combination of bullish OPEC+ related headlines. Firstly, the bloc has reportedly agreed to a 75K barrel per day output hike from February that will just apply to Russia and Kazakhstan (the two countries which had been pushing for a 500K barrel per day hike in February for the whole cartel). The output limits on the rest of the cartel will remain the same as in January. Meanwhile, reports suggest that Saudi Arabia will make a voluntary output cut in February.

No specific amount has yet been named, but one would imagine it would be by at least as much as the amount by which Russia and Kazakhstan are increasing their own output (75K barrels per day). Crude oil markets have responded positively given that the more bearish outcome of 500K barrel per day being brought back online right when much of the global economy goes back into lockdown, which is hurting the near-term demand for fuel.

Rest of the week for crude oil markets…

OPEC+ is yet to confirm the above. But once they have, oil market focus will shift from the supply side back to the demand side, meaning crude oil markets are likely to return to trading as a function of global risk appetite dynamics.

That means that key events this week in US politics (the Georgia elections on Tuesday and Congressional certification of the November 2020 Presidential election on Thursday), as well as US data (December ISM services PMI on Thursday and December NFP data on Friday) and Wednesday’s FOMC minutes will be the key drivers of price action.

Focus will also remain on the pandemic; crude has thus not been affected too badly by the UK going into a stricter lockdown and speculation that Germany will extend its national lockdown to the end of the month, perhaps on continued hopes for rapid vaccination. Vaccination programmes are indeed accelerating in major markets around the world, but there are some fears that the recently discovered South African variant of Covid-19 might be unaffected by the vaccines currently in distribution.