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Oil futures finished lower Wednesday as a “challenging” economic environment fed demand uncertainty, but prices scored a quarterly gain of more than 20%, with traders betting that OPEC and its allies will agree to extend production curbs.
U.S. government data released Wednesday provided earlier support, with weekly crude supplies down, contradicting expectations for a modest climb and marking the first fall in six weeks.
But oil prices gave up earlier gains to turn lower following comments from Mohammad Barkindo, secretary general of the Organization of the Petroleum Exporting Countries, known as OPEC.
The group and its allies, referred to as OPEC+, held a technical committee meeting Wednesday, ahead of the OPEC+ gathering Thursday that’s expected to result in a decision on production levels for the month of May.
In comments at the technical meeting, Barkindo said that while the world has seen “further positives for the recovery” in terms of vaccine rollouts and fiscal stimulus in the first quarter, the economic environment “remains challenging, complex and uncertain.”
“There is massive pent up demand for oil in the global economy, but the recovery is not linear,” said Peter McNally, global sector lead for industrials, materials and energy at Third Bridge. “Until the recovery is clear, we expect OPEC to remain cautious about adding more barrels to the market.
West Texas Intermediate crude for May delivery
CL.1,
CLK21,
fell $1.39, or 2.3%, to settle at $59.16 a barrel on the New York Mercantile Exchange.
May Brent crude
BRNK21,
which expired at the end of the session, declined by 60 cents, or 0.9%, to end at $63.54 a barrel on ICE Futures Europe. However, June Brent crude
BRN00,
BRNM21,
the most actively-traded contract, lost $1.43, or 2.2%, at $62.74.
Based on the front months, WTI crude lost 3.8% for the month, but gained almost 22% for the quarter. Brent crude saw a monthly loss of 3.9%, with prices up almost 23% year to date.
The Energy Information Administration reported Wednesday that U.S. crude inventories fell by 900,000 barrels for the week ended March 26. IHS Markit had forecast an increase of 600,000 barrels, while the American Petroleum Institute on Tuesday reported a 3.9 million-barrel increase.
Read: Energy sector leads year-to-date rise for commodities
U.S. Gulf Coast refineries continue to rebound from last month’s winter storm, with total U.S. refinery runs rising to 14.94 million barrels per day, the highest in a year, said Matt Smith, director of commodity research at ClipperData. That contributed to the decline in crude supplies for the week.
Traders also await Thursday’s decision by OPEC+ on production curbs.
Russian energy officials have “indicated that they would be willing to keep overall OPEC+ output on hold — a reversal of its position earlier in 2021, when Russia had been pushing to raise output,” Cailin Birch, global economist at The Economist Intelligence Unit, told MarketWatch.
So for now, “it appears that the alliance’s two de facto leaders, Russia and Saudi Arabia, have reached a comfortable understanding,” she said.
News reports said OPEC+ lowered their forecast for 2021 oil-demand growth by 300,000 barrels ahead of the Thursday meeting.
“Given this pessimistic outlook, it seems likely that the production quotas will be left in place for another month,” said Eugen Weinberg, analyst at Commerzbank, in a note.
Meanwhile, the EIA report Wednesday also showed crude stocks at the Cushing, Okla., storage hub climbed by 800,000 barrels for the week.
Gasoline supply was down by 1.7 million barrels, while distillate stockpiles rose by 2.5 million barrels for the week,” the EIA said. IHS Markit forecast weekly supply increases of 400,000 barrels for gasoline and 300,000 barrels for distillates.
On Nymex Wednesday, April gasoline
RBJ21,
fell 1.8% to $1.95 a gallon, posting a monthly gain of 4.1%, and quarterly rise of nearly 39%. April heating oil
HOJ21,
shed 1% to $1.77 a gallon, with prices losing 4.6% in March, but climbing about 20% for the quarter. The April contracts for the products expired at Wednesday’s settlements.
Demand has been a key concern for oil traders, amid rising coronavirus cases in Europe and uncertainty surrounding an economic recovery in the U.S.
“Everything depends on demand,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch. “While we are seeing more air travel domestically here in the U.S. and driving, cases of COVID are rising here in the U.S. and the race to vaccinate…is under way.”
In Europe, it’s a totally different story as Germany is still having issues and France is contemplating a month-long lockdown, he said. “Demand worldwide will be choppy at best.”
For now, “we don’t expect any surprises from OPEC in the upcoming decision. We do feel the worldwide demand coming back is the factor than can sustain prices here at the $60 level,” said Zahir.
Also on Wednesday, May natural gas
NGK21,
fell by 0.6% to $2.61 per million British thermal units, ahead of the EIA’s weekly update Thursday on U.S. supplies of the fuel. Prices marked a monthly loss of 5.9%, though rose 2.7% for the quarter.
