Oil prices reached multi-month highs on January 4, 2021, riding on expectations that OPEC, together with its allied producers, may cap oil output at the current levels next month as the COVID-19 pandemic keeps fears about the first-half demand elevated.
Prices surged in line with the wider financial markets, with the Brent crude futures reaching around $53.17 per barrel, which is the highest level since March 2020. Moreover, the U.S. West Texas Intermediate crude reached $49.71 per barrel, the highest since Feb. 2020.
On their part, the March Brent crude futures were trading at $52.94 a barrel, which is up by $1.14 or around 2.2%, by 0736 GMT. On the other hand, the February WTI crude futures gained 98 cents, or around 2%, to trade at $49.50 a barrel.
The broader macro momentum trends that include a slightly weakening dollar and most investors positioning for a recovery in the oil industry in 2021 may support the oil prices as explained by Energy Aspects analyst Virendra Chauhan. He added:
“Maybe there is some positive sentiment from OPEC+ looking to constrain supply in light of the virus rearing its ugly head in the west.”
OPEC Speaks Out
The Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), Mohammad Barkindo, said on January 3 that while the demand for crude oil might increase by 5.9M barrels per day to reach 95.9M bpd in 2021, OPEC sees many downside demand risks in the first half of the year.
“We are only beginning to emerge from a year of deep investment cuts, huge job losses, and the worst crude oil demand destruction on record.”
Prices ended last year almost 20% below 2019’s average, still on the road to recovery from the effect of global lockdown measures. These lockdowns have majorly slashed fuel demand, although the world’s major producers agreed to these record output cuts.
OPEC+ decided last month to raise output by 500,000 barrels daily in January, expecting an increase in demand and agreed to meet monthly to review production. Energy Aspects and RBC Capital analysts said that OPEC+ might maintain January production levels in February. RBC Capital’s Helima Croft said:
“We think the producer group will opt to forgo any further production increases for February with COVID-19 cases continuing to climb and the slower-than-expected vaccine rollout.”
The crude oil production in the United States remained under pressure from weak prices and dwindling demand, down over 2 million barrels per day in October from earlier in 2020. This news was published in a government report on January 1, 2021.