(Bloomberg) Oil erased earlier gains ahead of an OPEC+ meeting to decide whether the group can keep lifting output as a surging virus threatens the global energy demand recovery. Futures in New York fell 0.3% after earlier approaching $50 a barrel. The Organization of Petroleum Exporting Countries and its allies are returning 500,000 barrels a day to the market this month and will meet on Monday to decide on production levels for February. The outlook for the first half of 2021 is mixed and there are still many downside risks to juggle, OPEC Secretary-General Mohammad Barkindo said at a meeting on Sunday.As the group gathers, there are signs that lockdowns in some countries are set to be extended, potentially curbing oil demand. Germany is poised to extend stricter lockdown measures beyond Jan. 10, while Japan is considering another state of emergency for the Tokyo area.
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.”
West Texas Intermediate for February delivery fell 0.3% to $48.36 a barrel at 8:10 a.m. in New York; earlier the benchmark added as much as 2.7%
Brent for March settlement gained 0.2% to $51.88
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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