Oil prices jumped early on Wednesday, following reports that the OPEC+ group could be weighing the possibility not to increase collective oil production from April as widely expected.
And despite a shockingly large crude build (the largest on record) as estimated on Wednesday by the EIA, oil prices were still holding strong.
As of 9:52 a.m. ET on Wednesday, before the weekly EIA inventory report, WTI Crude prices were rising by 1.84 percent at $60.87 and Brent Crude prices were up 1.63 percent on the day at $63.66.
By 11:30am, WTI was trading even higher, at $61.28, with Brent trading at $64 per barrel.
What started as a muted trading day quickly turned into a bull run on Tuesday, as oil prices jumped by $1 a barrel shortly after open, after Reuters reported that the OPEC+ alliance is considering keeping the oil production cuts from March in place in April as well, in view of the still-fragile global demand recovery.
Key members of OPEC have proposed keeping the current level of the OPEC+ cuts intact in April, while it is not immediately clear if Saudi Arabia would reverse its extra 1 million bpd cut from April, according to Reuters’ sources.
This report is in stark contrast with the expectations of many analysts and the market as a whole that the ministers of the OPEC+ group are set to decide on Thursday to increase production from April. Saudi Arabia is also expected to reverse its additional 1-million-bpd unilateral cut from April.
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“It is widely expected that these voluntary cuts from Saudi Arabia will not be extended any further, while broad expectations are that OPEC+ will likely ease output cuts by 500Mbbls/d when they meet later this week,” ING strategists Warren Patterson and Wenyu Yao said on Tuesday.
However, until the end of the meeting on Thursday, no decision will be announced from OPEC+, and the market will continue to speculate and react to all kinds of reports.
“Those who are trying to predict the next move of OPEC+, to those I say, don’t try to predict the unpredictable,” Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said two weeks ago when he warned oil producers to remain “extremely cautious.”
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By Tsvetana Paraskova for Oilprice.com
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The second reason is that global oil inventories have fallen from an estimated 1.4 billion barrels at the height of the pandemic in the middle of 2020 to an estimated 100 million barrels now. So a build of US global oil inventory by 21.6 million barrels even if it is proven to be true is neither here nor there.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London