By Sharon Cho and Alex Longley
Crude started the year on the front foot, with WTI hitting a 10-month high. Oil has emerged as a favored trade to hedge inflation this year, and the world’s biggest commodity indexes are set to spur more buying with their annual re-balancing this week. Focus is now shifting to the decision OPEC and its allies will make regarding crude output at Monday’s meeting and the impact of coronavirus on demand.
“The immediate outlook for crude oil, especially at current levels, may be somewhat challenging as the global recovery in fuel demand continues to be pushed forward,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. For OPEC+ it’s “better to do nothing, thereby ensuring the ability to return 500,000 barrels a day in March.”
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Oil demand is stronger in China, where a cold winter and power shortages are prompting factories to rush to install diesel generators. A gauge of Chinese manufacturing strength for December missed estimates, while a similar Indian measure increased slightly from the previous month.
At a meeting on Sunday, several countries including Saudi Arabia sounded cautious about raising output in February, delegates said. Russia has said OPEC+, which slashed output last year, can add another 500,000 barrels a day next month, while Riyadh has publicly kept its views under wraps.
“For the first of these monthly meetings the balance of risks to the oil demand recovery has changed,” said Harry Tchilinguirian, oil strategist at BNP Paribas. “The OPEC+ producer group may have to re-schedule and delay further tapering of voluntary supply cuts in view of latest Covid developments.”
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