Oil price eases after touching $70 per barrel in March

Business Monday 15/March/2021 18:31 PM
By: Times News Service
Oil price eases after touching $70 per barrel in March
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Muscat: The rally in oil prices continued during early March-2021 with prices touching a 14-month high and briefly trading above the US$70 per barrel mark in the spot market for the first time since January-2020, a new report states.

An attack on Saudi oil facilities during the last week also led to a spike in global crude prices. However, prices receded soon after sceptics set in highlighting an overbought market that resulted in higher volatility, according to Kamco Invest, a Kuwait-based investment, strategy and research firm.

“A strong US dollar also affected oil prices as import bills soared for importers led by the impact of higher oil prices. A stronger US dollar, as well as increasing demand for crude as COVID-19 restrictions, eased in several countries,” the report said.

Price gains during early March-2021 came mainly on the back of expectations of higher demand in the near term as COVID-19 vaccinations picked up across the globe and get reflected in economic growth estimates for the year.

The rally was also supported by the Organisation of Petroleum Exporting Countries (OPEC’s) surprise decision to keep production cuts unchanged for another month. Favourable demand outlook was also reflected in higher demand for end products in the US, including that of diesel, that resulted in a higher-than-expected decline in refined product inventories, although crude oil inventories increased during the week.

“The approval of the US$ 1.9 trillion financial packages for the US economy also added to the optimism around oil demand. Besides, road transportation demand is also expected to see an increase in the coming months after a snowy February-2021 that limited travel plans,” the Kamco Invest report said.

Demand trends also remained robust in China reaching pre-COVID levels with year-to-date Feb-2021 demand for diesel up by 10 per cent from the first two months of 2019 and motor fuel demand up 3.2 per cent during the same period, as per Bloomberg.
On the other hand, record-high domestic fuel prices in India affected demand that declined by 4.9 per cent month-on-month for the second consecutive month during February-2021 and reached the lowest level since September-2020.

On the supply front, crude prices got support from Saudi Arabia’s pledge for voluntary production cuts. Opec crude production declined by almost one million barrels per day during February-2021 mainly on the back of a steep monthly decline in production by Saudi Arabia further supported by a decline in production by Angola and Equatorial Guinea, while most of the other producers reported a marginal monthly increase in production.

In its Short Term Energy Outlook, the US Energy Information Administration (EIA) raised its forecasted production for this year and 2022. The agency expects 2021 production to reach 11.15 million barrels per day as compared to its previous forecast of 11.02 million barrels per day, while 2022 production is expected to increase to 12.02 million barrels per day as compared to last month’s forecast of 11.53 million barrels per day.

Opec, in its monthly report, also raised its estimates for non-Opec crude production by 0.47 million barrels per day for 2021 mainly led by higher supply from Canada, the US, Norway and Brazil.