Mar 12, 2021
The global Brent benchmark started this week with a push above $70 a barrel after attacks on Saudi oil infrastructure, before retreating. While attention is centered on the recovery in demand and OPEC+ policy, there are concerns higher prices might encourage a surge in U.S. production by shale drillers in a move that would add to supply concerns amid sharply-rising flows of Iranian crude into China.
“We’ve tested the $70-$72 resistance for Brent, and that level held pretty well,” said Hans Van Cleef, senior Energy Economist at ABN Amro. “I’m still cautious for a serious downward correction.”
The availability of crude cargoes, meanwhile, remains tight due to the OPEC+ curbs. Some oil processors in Asia will get less crude than they asked for next month from Saudi Arabia as the producer extends its unilateral output cuts. Three refiners will receive almost 20% less supply than requested.
The prompt timespread for Brent was 66 cents a barrel in backwardation — a bullish market structure where near-dated prices are more expensive than later-dated ones — compared with as little as 45 cents earlier in the week.
OPEC on Thursday sounded a note of caution on the outlook, trimming its forecasts for the amount of crude it will need to pump over the next two quarters. All eyes will be on an International Energy Agency report next week, which will publish forward-looking demand forecasts, while the market will also be watching for clues on the health of the U.S.-China relationship following a high-level meeting set for March 18-19 in Alaska.
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