Oil prices rally to highest since 2019 after Opec+ rolls over output curbs

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Oil prices rallied to their highest since 2019 on Friday after Opec and its allies agreed to roll over existing production cuts until the end of April.

Brent, the marker under which two-thirds of global crude is traded, ended the week at $69.36 per barrel. West Texas Intermediate, which tracks US crude grades, closed at $66.09 per barrel. Both benchmarks are up more than 20 per cent over the past month.

On Thursday, the 23-member Opec+ group decided to extend 7.2 million barrels per day of oil output curbs into April, with small exemptions to Russia and Kazakhstan.

Saudi Arabia, which leads the alliance alongside Russia, also decided to extend its outsized voluntary cut of 1m bpd until the end of April.

The development was “a big surprise as market participants had expected an increase of 1.5m bpd, with 500,000 bpd coming from Opec+ and 1m bpd from Saudi Arabia, ending its voluntary one-off cut for February and March,” Giovanni Staunovo, commodity analyst at UBS, said.

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UBS expects global oil stockpiles to fall at a faster pace in April following the alliance’s decision, which underpins the Swiss bank’s forecast of Brent trading at $75 per barrel and WTI at $72 per barrel in the second half of the year.

Goldman Sachs forecasts Brent reaching $75 in the second quarter and climbing to $80 in the third quarter. Citi sees oil trading at above $70 by the end of March-end. Last month, Bank of America projected Brent will rise at its fastest pace since the 1970s over the next three years, potentially hitting $100 per barrel.

Even before Opec+’s output cut rollover, prices had rebounded on the back of a widespread vaccination drive in western economies, a strong drawback of crude inventories and an expected uptick in higher gasoline and jet fuel demand.

The change in outlook is markedly differently in contrast to market dynamics last April, when WTI futures contract prices plunged to negative $37 and Brent fell to $26, due to an oil oversupply and lack of storage.

Though some analysts said they expect US shale oil production to increase as oil prices surge due to output curbs, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, brushed off a swift comeback by shale producers.

“Drill, baby, drill’ is gone forever,” he said at a press conference following the end of the group’s meeting on Thursday.

“Opec+ is testing the resilience of the US shale industry, betting that producers … are no longer in a position to fully capitalise on the oil price recovery,” said Han Tan, market analyst at FXTM.

In October, Vicki Hollub, chief executive of Occidental Petroleum, one of the biggest producers in the US shale industry, said oil production in the country will never again return to its pre-Covid levels when output reached a record 13 million barrels a day as America overtook Saudi Arabia as the world’s largest producer.

“It’s just going to be too difficult to replace the 2 million barrels a day of production that we’ve lost, and then to further grow beyond that,” Ms Hollub said at the Energy Intelligence Forum last October. “Over the next three to four years there’s going to be moderate restoration of production, but not at high growth.”

The shale industry, whose growth was fuelled by debt, was hard hit during the pandemic, as demand collapsed during the health crisis.

The National

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