The black liquid regained momentum on Friday, with both benchmarks gaining over 2% as bullish bets resumed after the Organization of Petroleum Exporting Countries and its Allies (OPEC+) on Thursday stated that they would stick to the original plan and continue to keep production steady following the last agreement the group made.
Brent crude futures, the global benchmark, ended the week down 1.94%, making it the second consecutive week of decline. However, on Friday, the benchmark gained 2.73% to end the week trading at $82.74 a barrel.
U.S. benchmark, the West Texas Intermediate (WTI) crude futures also ended the week down 2.75%, also its second consecutive decline. On Friday, the pair surged by 3.12% to end the week trading at $81.27 a barrel.
What you should know
On Thursday, The OPEC+ agreed to stick to their initial plan to raise oil output by 400,000 barrels per day from December even after calls from U.S. President Joe Biden for extra output from the cartel in other to cool rising prices.
The White House said it would consider all tools at its disposal to guarantee affordable energy, including the possibility of releasing oil from strategic petroleum reserves (SPR).
However, expectations the U.S could tap its strategic petroleum reserves to curb the spike in energy prices were quickly dismissed as bulls had the day on Friday, reinforcing expectations that oil supplies will remain tight.
In a further sign pointing to tighter output, oilfield services firm Baker Hughes Co., reported its weekly U.S. rig count rose to 550.
The supply and demand imbalance will remain in focus as the Energy Information Administration (EIA) and OPEC publish their monthly reports next week.
Last week, China’s National Food and Strategic Reserves Administration, in an official statement, stated that the country has released reserves of two fuels. It stated that they were released in order to increase market supply and support price stability.
What they are saying
Commerzbank said in a note that, “In our opinion, however, the idea that this would prompt the US – as some have speculated – to release some of its strategic oil reserves is not very likely, and will ultimately be up to the US president to decide.”
Bob Yawger, director of energy futures at Mizuho explained that OPEC+’s decision to stay the course and the Biden administration’s lack of a substantial response has the oil rally continuing. He further stated that only a coordinated effort, with China and others involved, would address the lack of barrels in the market.
Rystad Energy head of oil markets, Bjornar Tonhaugen said in a note that, “Markets know that the release of strategic reserves can only have a temporary bearish effect on prompt prices and is not a lasting solution for an imbalance between supply and demand.”
With the OPEC+ sticking to its 400,000 barrels per day plan, it is expected that oil bulls with come in full force to win the coming weeks.
Before now, Goldman Sachs’ global head of commodities research, Jeff Currie, stated that the global benchmark could hit $90 per barrel if the approaching winter in the northern hemisphere proves colder than normal. The forecast is $10 higher than the bank’s current forecast. This forecast might as well become reality with the OPEC+ current stance.