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  • WTI is rangebound close to $61.00 as markets await key events later in the week.
  • The OPEC+ meeting, tier one US data (including NFP), a Fed Chair speech and weekly inventory updates will be scrutinised.

Crude oil markets have seen consolidative trade on Tuesday, with the American benchmark for sweet light crude, West Texas Intermediary or WTI, currently trading towards the upper end of its intra-day $60.00ish-$61.15ish range, up a modest 30 cents or around 0.6% on the session. Consolidative trade is unsurprising ahead of this week’s OPEC+ meeting, where the cartel is expected to agree on higher oil production quotas after from the start of April. Crude oil traders will also have to keep one eye on this week’s crude oil inventory releases (the weekly Private API inventory report is out at 21:30GMT on Tuesday followed by the official US EIA report at 15:30GMT on Wednesday).

Demand-side developments will also be of note, with a number of important economic events upcoming in the US; Wednesday sees the release of the ISM Services PMI report for February, a timely update on the state of the US’ service sector recovery, as well as February’s ADP National Employment Change estimate, a release that helps set expectations for the NFP release later in the week. Thursday sees Fed Chair Jerome Powell (expected to reiterate the dovish Fed script whilst now showing any concerns about rising bond yields) plus Weekly Jobless Claims numbers and Friday sees the release of the February Labour Market Report, which will be the main event of the week from a global macro perspective.

Crude News Update

Fundamental catalysts have been few and far between on Tuesday with crude oil markets in wait-and-see mode ahead of the above-mentioned risk events. A Reuters survey found that, as expected, OPEC+ output fell for the first month in seven in February as the voluntary Saudi Arabian output cuts (of 1M barrels per day) took effect. The drop in output was also helped by the fact that Russia failed to raise oil output in February (despite being granted permission to do so by OPEC+), with Russian industry sources citing harsh winter weather that hindered work.

Lockdown concerns in Europe are also worth noting, though they have not seemed to weigh on the price action much; Germany is to ease lockdowns from 7 March, but only slightly, with the country now expected to extend modified restriction until the end of the month. News of lockdown extension from Germany comes amid reports out of France that the Health Ministry there is set to extend restrictions such as curfew for at least another four to six weeks and recently out of Italy of tighter restrictions in Milan, Turin and surrounding regions.

Broadly speaking, the macroeconomic backdrop for crude oil markets remains strong, so, barring any OPEC+ related hiccups, the stage should be set for a continued grind higher in crude oil markets, or at the very least for crude oil markets to remain supported in the coming weeks. After all; with vaccine rollouts accelerating in key markets and expectations for a strong global economic rebound later in the year continuing to grow, the demand outlook is bright.

Note that a somewhat concerning report from the FT on Monday highlighted the fact that the recently discovered Brazilian (P.1.) Covid-19 variant can, in most cases, avoid naturally acquired Covid-19 immunity (to the original strain, that is). That raises the risk that the Brazilian variant might be able to avoid vaccine-acquired immunity, the FT report suggested. As of yet, there is no data to suggest this is the case and vaccine makers are already developing booster jabs to tackle the Brazilian variant, so no need to ring the alarm bells just yet. This will be a theme worth watching in the coming weeks though, as a vaccine-resistant Covid-19 variant would be a major blow to global recovery hopes.

 

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