Market Overview

Crude Futures Rise On OPEC+ Output Compromise, Potential Brent Oil Benchmark Addition

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Crude Futures Rise On OPEC+ Output Compromise, Potential Brent Oil Benchmark Addition

Crude prices and United States Oil Fund LP (NYSE: USO) are rising after the Oil and Petroleum Exporting Countries and allies (OPEC+) agreed to taper production cuts in January 2021 gradually.

According to Bloomberg, the group members will hold monthly discussions to decide the next course of action.

What Happened: After a week-long negotiation, OPEC+ arrived at a consensus to raise oil output by 500,000 barrels per day in Jan 2021, reducing the production cuts to 7.2 million from the previously decided 7.7 million barrels per day.

The increased supply could lead to a gradual and systematic price rise in 2021. OPEC+ is set to meet monthly to manage supply additions making the dependent on price-driven signals like time spreads, according to Goldman Sachs Group Inc (NYSE: GS) analysts.

The discovery and distribution of the COVID-19 vaccine will also play a significant role in ensuring that demand levels revert to the pre-pandemic era.

S&P Global Platts has also proposed adding the US' primary export-grade crude WTI Midland be included in its Dated Brent benchmark from March 2022.

Why Does It Matter: The revised production schedule accelerates the oil output goals by a quarter.

The Wall Street Journal reports suggest that Asian markets' oil demand is recovering. On the other hand, fresh waves of coronavirus infections and lockdown measures in Europe could drag down oil prices, Bloomberg reports.

The production cuts announcement, which was expected earlier this week, was delayed over disagreements between key members, Saudi Arabia and the United Arab Emirates.

The addition of WTI crude to the Brent benchmark could also transform the oil price mechanism in many parts of the world.

Price Action: On the last check Friday, USO is trading higher by 1.12% at $31.60 in the pre-market session, Brent crude futures are trading higher by 1.38% to $49.38, and WTI crude futures are up by 1.37% to $46.26.

 

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