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Crude oil futures settled higher Tuesday as Reuters reported OPEC and its allies will consider extending voluntary production cuts into Q2.
OPEC+ agreed in November to voluntary cuts totaling ~2.2M bbl/day for this year’s Q1, led by Saudi Arabia rolling over its own voluntary cut, and the group could keep the additional cuts in place until the end of the year, two sources told Reuters.
The issue has not yet been discussed formally by OPEC+, according to the report, which also said a decision on extending the cuts is expected in the first week of March.
“OPEC is looking for mid-$80s, maybe ~$85/bbl on Brent. If we stay below that, they will curtail production all the way to the year end,” says Dennis Kissler, trading senior VP at BOK Financial.
Front-month Nymex crude (CL1:COM) for April delivery closed +1.6% to $78.87/bbl, and front-month April Brent crude (CO1:COM) ended +1.3% to $83.65/bbl, the second highest YTD settlement value for both.
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The U.S. benchmark’s prompt spread – the price difference between its two nearest contracts – indicates a tightening supply outlook, widening to $0.65/bbl in backwardation compared with a bearish contango structure less than four weeks ago.
The 3-2-1 U.S. refinery crack spread rose to the highest in more than five months, indicating strong profitability for domestic refineries helped by robust consumer demand for petroleum products as foreign buyers turn to American crude to avoid Red Sea shipping problems.
Better than expected demand out of China and India, delays in Red Sea cargoes due to the attacks by Houthi rebels, and reports that the G20 believes the chances of a soft landing in the global economy are looking more likely are raising demand prospects for oil and gas, according to analyst Phil Flynn at The Price Futures Group.