Recap: Oil futures extended gains made on the first trading day of the year, as OPEC+ agreed to revive more halted production as the outlook for global oil markets improved, with demand largely withstanding the omicron variant of coronavirus. Global fuel consumption has been on the rise after the 2020 collapse. Travel has picked up, while factory activity across key Asian consuming countries continues to increase amid dwindling U.S. crude oil inventories. This has pushed Brent above $80 and WTI toward $80. March Brent added $1.02, or 1.2% to settle at $80.00 a barrel, while February WTI settled at $76.99 a barrel, up 91 cents, or 1.2%. February RBOB closed up .0198 cents, to settle at $2.2763 a gallon, while February heating oil settled at $2.4095 a gallon, up .0521 cents.
Market Outlook: Although oil prices continue to climb, the price increase has its risks. Air travel had seen significant disruptions in the U.S. last week, with more than 1,300 flights canceled on Friday and an additional 1,000 flights on Saturday, as carriers struggle with staffing shortages related to coronavirus infections. China has also shown signs of weakening demand due to its “zero-COVID” approach and tough line on pollution. And while OPEC’s analysts see a tighter first-quarter, a chunk of the surplus they previously anticipated has been deferred to later in the year. The group has said several times that it has the option of pausing or even reversing its scheduled supply increases if needed. That being said, we expect for oil prices to continue to climb, but also to encounter quite a bit of headwind along the way.
Fundamental News: On Tuesday, OPEC+ agreed to stick to its planned increase in oil output for February because it expects the Omicron coronavirus variant to have a short-lived impact on demand. The group of producers has raised its output target each month since August by 400,000 bpd. Current plans would see OPEC+ again raise the target by 400,000 bpd for February, leaving about 3 million bpd in cuts to unwind by September, in line with an agreement signed last July. While OPEC+ has increased its output target each month, actual production has lagged as some members struggle with capacity constraints. Last month, the IEA said OPEC+ producers missed their targets by 730,000 bpd in October and by 650,000 bpd in November. OPEC+ is scheduled to hold its next meeting on February 2nd.
The White House welcomed coordination with Saudi Arabia, the United Arab Emirates and OPEC+ in addressing price pressures. A spokesperson said the White House welcomed the decision by OPEC+ to continue increases in production which will help facilitate economic recovery.
The Abu Dhabi National Oil Company has informed some buyers in Asia that it will supply full contractual volumes of crude in March, steady from the previous month. This comes ahead of the OPEC+ meeting later on Tuesday.
China more than halved the volume of export quotas for refined fuel, predominantly gasoline, diesel and aviation fuel, under the first allotment for 2022, while raising the allowances for low-sulfur fuel oil by 30%. Quotas for refined fuel exports totaled 13 million tons under the batch, down 56% from 29.5 million tons for the first allotment of 2021. Separately, the government issued 6.5 million tons of quotas for exporting low-sulfur fuel oil, used primarily as marine bunker fuel. That was up 30% from the 5 million tons released in the first batch of 2021.
Early Market Call – as of 8:25 AM EDT
WTI – Feb $76.99 Up 0.59
RBOB – Feb $2.2874 Up 1.11
HO – Feb $2.2432 Up 2.25
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