Oil holds near 13-month high, supported by sharp drop in US output

Oil holds near 13-month high, supported by sharp drop in US output

NEW YORK: Oil prices held near 13-month highs on Thursday, with profit-taking limited by an assurance that US interest rates will stay low and a sharp drop in US crude output last week due to the winter storm in Texas.

Brent futures for April delivery rose 10 cents, or 0.2%, to $67.14 a barrel by 11:36 a.m. EST (1636 GMT), while US West Texas Intermediate (WTI) crude rose 44 cents, or 0.7%, to $63.66. The April Brent contract expires on Friday.

In intraday trade, both contracts hit their highest since January 2020 and both are on track for their highest settlement in 13 months.

“Oil prices are edging higher today but once again there does appear to be flagging momentum in the rally, perhaps a sign that we’re heading for a correction in the incredible four month bull run,” said Craig Erlam, senior analyst at OANDA.

Analysts noted higher oil prices in recent weeks – both Brent and WTI were up about 20% in February – could encourage US producers to return to the wellpad and OPEC+ to loosen its production reductions.

The Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, are due to meet on March 4.

The group will discuss a modest easing of oil supply curbs from April given a recovery in prices, OPEC+ sources said, although some suggest holding steady for now given the risk of new setbacks in the battle against the pandemic.

Extra voluntary cuts by Saudi Arabia in February and March have tightened global supplies and supported prices.

Meanwhile, an assurance from the US Federal Reserve that interest rates would stay low for a while should boost investors’ risk appetite and global equity markets, while weakening the US dollar to its lowest in seven weeks against a basket of other currencies.

The winter storm in Texas caused US crude production to drop by more than 10% or 1 million barrels per day (bpd) last week, the Energy Information Administration (EIA) said.

Fuel supplies in the world’s largest oil consumer also tightened as its refinery crude inputs dropped to the lowest since September 2008, EIA data showed.

Texas state legislators on Thursday started digging into the causes of deadly power blackouts that left millions shivering in the dark as frigid temperatures caught its grid operator and utilities ill-prepared for skyrocketing power demand.

ING analysts said US crude stockpiles could rise in weeks ahead as production has recovered fairly quickly while refinery capacity is expected to take longer to return to normal.

Barclays, which raised its oil price forecasts on Thursday, said oil could rally again on the weaker-than-expected supply response by US oil operators to higher prices.

“However, we remain cautious over the near term on easing OPEC+ support, risks from more transmissible COVID-19 variants and elevated positioning,” Barclays said.

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