Recap: Oil futures rose to their highest level in over a year on Tuesday, propelled higher by expectations that efforts to cut output by OPEC and other major producers will aid in reducing supplies and help push the market in to a supply shortage. According to reports, the producer alliance’s Joint Technical Committee, which held a meeting Tuesday, expects the year’s oil market deficit to peak at 2 million barrels per day by May. March WTI settled at $54.76 a barrel, up $1.21, or 2.3%, while Brent for April delivery settled at $57.46 a barrel, up $1.11, or 1.97%. March RBOB added 1.6%, to settle at $1.6160 a gallon, while March heating oil closed up 1.7%, at $1.6746 a gallon.
Market Outlook: March WTI pushed passed the key psychological resistance level of $55, to peak the session at $55.26 before paring gains to settle below $55. Buying on dips seems to be the preferred method of trading right now, as traders appear to be shrugging off COVID related demand concerns. If OPEC and its allies are compliant with production cuts and inventories continue to show signs of dropping, this market could gain enough momentum above $55, and we may possibly see $57.40. Looking at the charts, there is plenty of room to the upside, making the likelihood of this happening greater. Support is set at $53.05 and below that at $51.45.
Fundamental News: The OPEC+ Joint Technical Committee forecast that OECD oil inventories will fall below the 5-year average level in June. It estimates that global oil stocks will fall at an average rate of 1.1 million bpd in 2021. It also estimates that OPEC production will increase by 500,000 bpd in each month from April to June as the group phases out cuts.
According to an OPEC document, deep production cuts by oil producers will turn the market into deficit during 2021, despite cutting the global oil demand forecast due to rising lockdowns to contain the coronavirus. OPEC sees global oil demand at 97.9 million bpd in December 2021 under a base scenario. The 2021 oil demand growth estimate was cut to 5.6 million bpd, down from 5.9 million bpd in the January OPEC report. Under the base case scenario, the oil market deficit will reach a peak of 2 million bpd in May. Under an alternate, lower demand scenario, the market would have a 600,000 bpd surplus in April 2021 and a 100,000 bpd surplus in December 2021. OPEC+ experts see oil stocks falling every month of 2021, falling by a total of 406 million barrels in 2021 under a base case scenario.
LOOP reported that over 650,000 barrels of sour crude oil was delivered from the LOOP in January, an increase of 430,000 barrels from the prior month. Monthly LOOP Sour deliveries have increased since October, and January represented the most deliveries since August.
Platts Analytics expects that Permian crude oil production will continue to fall into 2Q2021 as natural declines outpace new wells. Platts though expects production to rebound during the second half of the year, causing Permian production to end the year slightly higher than it did at the end of 2020. Annual average production in 2021 though is expected to be some 360,000 b/d lower year on year.
Early Market Call – as of 9:10 AM EDT
WTI – Mar $55.36, up 61 cents
RBOB – Mar $1.6459, up 2.99 cents
HO – Mar $1.6869, up 1.23 cents
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