(Bloomberg) — Oil rebounded strongly from the biggest slump since November ahead of a keenly anticipated OPEC+ production-setting meeting this week that will help to determine whether a scorching rally endures.
Futures in New York rose toward $63 a barrel after losing 3.2% on Friday. The alliance will meet on Thursday and is expected to return some barrels to a market off to its quickest ever start to a year. But it’s unclear how vigorously the group will act, with the Saudi Arabian energy minister calling for producers to remain “extremely cautious.” A weaker dollar also supported prices.
See also: OPEC+ Faces Calls to Cool Oil Market Frenzy With Extra Barrels
In addition to OPEC+ supply cuts, oil’s recovery has been aided by Chinese demand, as well as stimulus in top economies. Data at the weekend showed while China’s recovery slowed in February it remained in expansionary territory, and figures on Friday confirmed India returned to growth last quarter. In the U.S., President Joe Biden’s $1.9 trillion relief package moved a step closer to realization after it passed the House of Representatives.
Saudi Arabia’s deep output cuts, an improving demand outlook, and the growing popularity of commodities as a hedge against resurgent inflation have pushed oil higher this year. There have been a raft of bullish calls in recent weeks predicting that the rally will continue as the producer response lags behind consumption, while maintenance in North Sea fields is set to reduce supply.
“The OPEC+ meeting is very important,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific. The “market could remain easily positive in the face of a modest increase in OPEC+ production. If there is a large increase then it could dampen the outlook in the short term,” he said.
OPEC+ continues to idle just over 7 million barrels of daily output — about 7% of global supply — and will this week decide whether to revive a 500,000-barrel tranche in April. The Saudis will also confirm whether an extra 1 million barrels they’ve recently taken offline will return as scheduled. If the hikes fall short of requirements, however, it could trigger a further surge, and the 23-nation group would be forced to deal with its consequences.
Brent’s prompt timespread was 72 cents a barrel in backwardation, a bullish market structure where near-dated prices are more expensive than later-dated ones. That compares with 25 cents at the start of February and a narrow discount at the beginning of the year.
Crude sank on Friday as a strengthening dollar damped the appeal of commodities priced in the currency, and amid escalating concerns around inflation and ructions in the Treasury market. Yet, the American oil benchmark still managed to rally nearly 18% in February for a fourth monthly gain.
Investors are also tracking shifts in the Middle East as the Biden administration seeks to recalibrate the U.S. relationship with Saudi Arabia, the most powerful OPEC member. In addition, an explosion struck an Israeli-owned cargo ship sailing out of the Middle East on Friday.
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