Analysts See Oil Market Firming Up
February 23, 2021
The energy markets closed higher in yesterday’s trading and was mainly driven by reports that shale oil producers in Texas could take up to 2 weeks to fully restart normal output. The recovery of the estimated between 2 to 4 million bpd of lost production now appears will ramp up slower than originally expected. The funds have been getting long in the energy markets and the current events could potentially lead to some high volatility here in the next couple weeks.
NYMEX RBOB futures prices have climbed for a fifth straight week, with prices at the pump for gasoline jumping for the seventh week in a row, at their fastest weekly pace since 2017 according to travel and navigation app GasBuddy.
The head of global commodities research at Bank of America, Francisco Blanch, said that with Brent prices at $60-$65 per barrel, OPEC and its allies are set to add more than 1.3 million bpd of supply in the second quarter, increasing further in the year-end to keep prices and balances in check.
Morgan Stanley said the global oil market has been undersupplied by 2.8 million bpd so far this year, heading for what maybe the tightest quarter since at least 2000.
Trafigura Group sees oil markets firming in the coming months as most of the world emerges from lockdowns and production losses from the recent US deep freeze add to a tighter supply outlook. It said about 40 million barrels of February oil output, mainly from the Permian Basin, will not be produced due the freeze, while refined products likely faced a similar number in lost output. About 1 million bpd of crude production may never come back due to the damage some oil wells incurred due to the weather.
Vortexa data showed that the amount of crude oil held around the world on tankers that have been stationary for at least 7 days fell to 78.45 million barrels as of February19th. It is the lowest level since April, down 21% from 98.79 million barrels on February 12th.
Bloomberg reported that global crude oil storage on sea and land are normalizing quickly, as strong OPEC+ compliance on supply cuts keeps oil markets in a supply deficit.
A source told RIA news agency ahead of the OPEC+ meeting next week that Saudi Arabia and Russia have differences over a potential deal among OPEC+ oil producers that could ease cuts on supply starting in April. The source said, “the Saudis will insist on maintaining production at the current level and will call for a cautious approach at the upcoming meeting.” Russian Deputy Prime Minister Alexander Novak has voiced support for a gradual increase in oil output amid improving demand and as COVID-19 vaccines are being rolled out. The two key questions as the group meets starting March 4th are will Saudi Arabia roll back its voluntary cut of 1 million bpd, which is due to end next month, and is there room for an additional increase in supply from the whole group.