- WTI has recovered from a brief dip as low as $59.50 and is moving back towards $61.00.
- Crude oil traders continue to focus on weather-related output disruptions in the US and on OPEC+ commentary.
Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary (or WTI), momentarily fell back as low as the $59.50 mark on Wednesday. Amid a lack of catalysts, crude oil markets had experienced a sharp sell-off at the start of CME pit trading hours (14:00GMT). However, as has happened now three times in the past 36 hours, dip buyers came rushing in to clinch a bargain and has successfully pushed WTI back above the $60.00 level again and on towards the $61.00 level again.
Session highs in the $61.20s are still some way off, but front-month WTI crude oil futures contracts are still trading with solid on-the-day gains of around 1.0% or 60 cents. Crude oil prices remain broadly underpinned by what continues to be a positive macro backdrop; vaccine rollouts continue and expectations for a rapid, post-Covid-19 reopening recovery are growing. This recovery is expected to be further accelerated in the US by fiscal stimulus and will be aided globally by ongoing accommodation from central banks. But supply-side fundamentals have been the main focus on Wednesday…
Driving the day
The main talking point in crude oil markets this week remains the impact of the unexpected deep-freeze in the south of the USA. The cold snap, which has killed 21 people and caused blackouts for millions in Texas, is not expected to let up until the weekend. According to the latest updates on the state of US oil production, 4M barrels per day of the country’s usual 11M barrel per day output has been taken offline, with Permian basis output reportedly down as much as 80%. Industry experts cited by Reuters think that output could be disrupted for days, if not weeks.
Meanwhile, focus has also been on OPEC+; the Saudi Energy Minister gave remarks prior to the start of US trade. Net-net, he sounded dovish (i.e. seemingly erring on the side of maintaining output cuts over expanding production); he said uncertainty is still very high, that we have to be extremely cautious and that it is still far too early to declare victory against the virus. However, he did not that we are in a much better place now that last year. With regards to OPEC+’s next move, he cautioned not to try to “predict the unpredictable”.
Oil hit fresh 13-month highs in wake of his comments (this was prior to the sharp sell-off which started at 14:00GMT), but it is worth noting that a recent WSJ report citing advisors Saudi Arabia said that country plans to expand oil output in the coming months. According to the WSJ report, the Saudis plan on formally announcing a reversal of the 1M barrels per day in voluntary cuts at the next OPEC+ meeting (this is in line with market expectations). The question is whether other OPEC+ members will want to maintain output at current levels or expand output like the Saudis to take advantage of higher prices.
API data incoming
Looking ahead, crude oil traders will be on notice for the release of weekly API Private Crude Oil Inventory data, which is released to subscribers at 21:30GMT and then the general public at 21:35GMT (but is often leaked before this time). API inventory numbers are being released a day late given the US public holiday on Monday.
Global inventories have been falling as of late amid a stronger than anticipated rebound in global economic activity (or at least, the economic hit from the Covid-19 third wave has not been as bad as anticipated) combined with output cuts from the Saudis and OPEC+. Production disruptions in the US will only serve to put further pressure on global inventories, though this Wednesday’s API data was collected before the impact of the deep freeze.
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