Crude Oil Rallies on OPEC Rollover Reports, Ignores Massive US Supply Buildup

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US crude oil futures are retesting $62 midweek, despite the US government reporting a surprise and substantial increase in domestic inventories. Oil prices are climbing mostly on reports that the Organization of the Petroleum Exporting Countries (OPEC) will not ease production cuts, fueling the tremendous rally to start 2021.

April West Texas Intermediate (WTI) crude oil futures surged $2.06, or 3.45%, to $61.80 per barrel at 16:52 GMT on Wednesday on the New York Mercantile Exchange. WTI prices had been slumping in recent sessions, sliding nearly 3% over the last week. Still, US crude is up 28% year-to-date.

Brent, the international benchmark for oil prices, is targeting $65. May Brent crude futures advanced $1.84, or 2.93%, to $64.54 a barrel on London’s ICE Futures exchange. Brent has also slipped 3% over the last week, although it remains up 25% so far this year.

According to the Energy Information Administration (EIA), domestic crude stockpiles swelled 21.6 million barrels in the week ending February 26. Economists had forecast an increase of just 1.3 million barrels.

Oil supplies at the Cushing, Oklahoma storage facility rose by 500,000 barrels. Gasoline inventories fell 13.6 million barrels, while distillate stockpiles decreased 9.7 million barrels.

Global crude markets dismissed the reports in favor of this week’s OPEC meeting. It was reported that OPEC and its allies, OPEC+, will be rolling over production cuts into April instead of easing reductions. Investors had anticipated that OPEC would let output increase by approximately 500,000 barrels per day (bpd). Some OPEC+ members had called for continuing with existing curbs into April over concerns about fragile demand.

Meanwhile, financial analysts are uncertain if Saudi Arabia will move ahead with unwinding its cuts or maintaining its reduction.

Reuters also viewed an OPEC document that recommended “cautious optimism,” citing “uncertainties” in the financial markets and surrounding coronavirus mutations. It also noted that officials believe the energy boom is due to investors rather than improving fundamentals.

Stephen Innes, the chief global market strategist at Axi, wrote in a research note:

[In the] game of back and forth, now I’d expect any increase above 500,000 [barrels a day] to be an incremental negative for oil. While Saudi may choose to delay the return of their 1mb/d unilateral cut, it seems likely that the high oil price will embolden Russia and others to push for the return of more than 500,000 b/d, so I think there’s a greater probability of tomorrow’s OPEC+ meeting being negative as opposed to a positive catalyst.

In other energy commodities, April natural gas futures tumbled $0.012, or 0.42%, to $2.863 per million British thermal units (btu). April gasoline futures soared $0.0338, or 1.75%, to $1.9702 a gallon. April heating oil futures jumped $0.0394, or 2.18%, to $1.8473 per gallon.

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