WEEKLY ENERGY RECAP: April 2, 2021

RIYADH: In the week closing, the Brent crude price rose slightly to $64.86 per barrel, a small weekly gain of just 26 cents. At the same time, WTI rose 48 cents to $61.45 per barrel.

The tiny weekly gains came despite the fact that OPEC+ did not make output cuts roll over, as was widely expected.

The organization unanimously agreed to continue its cautious and careful approach to oil market conditions as uncertainties still remain, including the prevalence of coronavirus variants, the uneven rollout of vaccines, further lockdowns and third virus waves in several countries, that will all continue to weigh on oil demand recovery.

This cautious approach illustrates that OPEC+ will only believe in demand recovery when it sees it, as clearly stated by the Saudi energy minister before April’s meeting. The minister said that “OPEC’s ship is still sailing at sea” and may be through the raging waves.

OPEC+ producers have agreed to gradually increase crude oil output quotas in May, June and July, with Saudi Arabia regaining the 1 million barrel per day voluntary cuts gradually over the same period.

It is important to note that in May and June, loading barrels are processed for high gasoline demand in the summer season, which the gradual output increases have modestly taken into consideration.

The market should also acknowledge that Saudi Arabia’s March crude oil exports were at their lowest levels since OPEC+ started in early 2017.

OPEC+ producers were wise enough to avoid being driven by the surge in US gasoline sales in March, which exceeded 2020 levels following a tough year of decreased demand.

Taking a gradual, cautious approach will ensure sustainability in oil price movement and will eliminate steep price fluctuations.

The gradual rolling over of production quotas into May, June and July will help the market contain the increase in outputs, let OPEC+ producers see the impact of the increase on the market and enable them to adjust output accordingly.

The latest figures from the Commodity Futures Trading Commission on March 30 showed that long positions on crude oil futures on the New York Mercantile Exchange numbered 675,494 contracts, down 6,153 contracts from the previous week (1,000 barrels for each contract). It is the third consecutive weekly drop in positions.