Oil futures inched higher Monday, buoyed by prospects for the passage of the U.S. stimulus bill, ahead of a decision this week by the Organization of the Petroleum Exporting Countries and its allies that’s expected to see a loosening of production curbs.
The U.S. House early Saturday passed the Biden administration’s $1.9 trillion package of COVID-19 relief spending. It now moves to the Senate, where it may be pared as Democrats work to push it through a chamber that’s divided 50-50, with Vice President Kamala Harris serving as the tiebreaking vote.
“The fact that the U.S. House finally passed the bill is a crucial step and now markets finally rejoice on solid ground,” said Louise Dickson, oil markets analyst at Rystad Energy, in Monday commentary. “Oil prices are naturally moving as spending is expected to rise in industrial and social activity, naturally creating more demand for oil,”
West Texas Intermediate crude for April delivery rose 35 cents, or 0.6%, to $61.85 a barrel on the New York Mercantile Exchange. May Brent crude, the global benchmark, added 48 cents, or 0.8%, to $64.90 a barrel on ICE Futures Europe.
Oil has rallied so far this year, boosted by expectations for the rollout of COVID-19 vaccines and fiscal stimulus to lead to a strong pickup in demand, while efforts by OPEC and its allies, a group known as OPEC+, to keep a lid on production have helped keep the market in balance, analysts said, a move enhanced by Saudi Arabia’s decision to cut an additional 1 million barrels a day in February and March.
“Clearly, given the strength we have seen in the market there will be growing pressure from within the group to ease cuts. While the market is expecting the group to increase output from April, the big unknown is by how much,” said Warren Patterson, head of commodities strategy at ING, in a note. OPEC+ is expected to make its decision on output Thursday.
“It is very likely that Saudi Arabia will bring back the 1 million barrels a day of supply that it is cutting voluntarily over February and March, then as for group cuts, under the deal the group can ease by 500,000 barrels per month,” said Patterson. “However given that the group did not ease anywhere near that in the first quarter of this year, there may be some members calling for more than 500,000 barrels a day of easing come April.”
Brent crude prices posted a gain of more than 18% for the month of February and the “higher oil price environment, an increasingly promising demand picture by summer, and the recovering but still growing U.S. oil production outlook for 2021 should give OPEC+ the confidence to slightly increase supply,” said Dickson.
However, she expects to see an increase of no more than 500,000 barrels per day.
“We expect the increase to be limited and in line with the current policy to not bring back more than 500,000 bpd on a monthly basis,” she said. “If the returning supply does not exceed 500,000 bpd though, the effect will be nearly neutral, as no trader can really expect OPEC+ to keep its cuts forever.”
Back on Nymex, prices for the April gasoline contract added 0.7% to $1.9638 a gallon. April heating oil shed less than 0.05% to $1.8424 a gallon.
April natural gas traded at $2.773 per million British thermal units, up by nearly 0.1%.