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After a weak start last week on expected production hikes by OPEC+, U.S. West Texas Intermediate and international-benchmark Brent crude oil jumped higher following the decision by OPEC+, not to increase oil output, except to Russia and Kazakhstan.
The real surprise for traders was the discipline that OPEC and its allies displayed in showing adherence to its long-term plan to tighten supply and drive prices higher.
Furthermore, they showed great restraint in keeping output levels low in the wake of impressive vaccination numbers from the United States. Traders also shrugged off weaker demand numbers from China earlier in the week and a jump in the U.S. Dollar.
Last week, May WTI crude oil settled at $65.92, up $4.69 or +7.66% and May Brent crude oil finished at $69.36, up $4.94 or +7.12%.
On paper, the government’s crude oil inventories report was bearish, but traders know the numbers were skewed by the Texas Freeze two weeks ago so it will take some time to get a true feel for U.S. supply.
Bullish traders also received a gift from Federal Reserve Chairman Jerome Powell, who on Thursday, indicated he wasn’t rattled by a jump in U.S. Treasury yields on expectations of a surge in inflation. Powell said the Fed would stay the course and would not change policy sooner-than-expected.
Finally, the U.S. government reported a bigger-than-expected jump in Non-Farm Payrolls for February. This is early proof the economy is recovering, which also indicates that demand would likely increase at least over the short-term.
Weekly Forecast
With OPEC+ not likely to have an impact on prices until early May, the focus now shifts back to vaccinations, containment of the virus and U.S. supply. These are the factors likely to drive the price action this week.
As far as the vaccinations are concerned, the U.S. is making tremendous progress in the administration of vaccines. Last week, President Biden even said there would be enough vaccines available for every U.S. adult. This is a positive for future demand.
The containment of the virus is another thing, however. According to reports, major challenges stand in the way with some Americans ditching personal responsibility and forgoing masks, even as a highly contagious B.1.1.7 variant is spreading to at least 46 states and Washington, D.C.
“That strain is increasing exponentially. It’s spiking up,” said Dr. Celine Gounder, an infectious diseases specialist and epidemiologist. “So we are probably right now on a tipping point of another surge.
The current rate of vaccinations might not be fast enough to fend off a major B.1.1.7 surge in the coming weeks.