OPEC meeting event risk for crude oil

Risk of supply curb easing

OPEC and allies are set to decide in their Thursday, March 4, meeting on whether to increase production after executing a rather successful supply curb agreement since 2020 that had seen crude oil prices trade at over 1-year highs. WTI and Brent had traded above $64 per barrel (bbl) and $67/bbl respectively into late February. Over and above the supply curb, recent output disruptions in the US Texas area and global economic recovery optimism had notably also helped to see the rally for prices accelerating.

That said, with the recovery in prices also came the contemplation from OPEC+ on whether an increase in output can be absorbed in a stable manner. Russia, the third largest producer of oil worldwide, had certainly been vocal about the preference for the resumption of output. OPEC+ had previously agreed in end-2020 to adopt a monthly review of output levels with the aim to see a gradual release of crude into the market without tipping it over amid the lingering pandemic effects. The acceleration of the price recovery had therefore led us to this March review that could potentially see 500,000 barrels per day (bpd) supply returned to the market.

Notably, Kingpin Saudi Arabia had taken a cautious stance in the resumption of crude production after having gifted the oil market an additional 1 million bpd voluntary cut in February and March. With the climb in crude oil prices, this 1 million bpd alongside the 500,000 bpd from the OPEC+ coalition would therefore all be put into question on their injection back into the oil market this week. The OPEC+ meeting update on Thursday would therefore be a significant one in terms of event risk for the current crude rally.

Uptrend for crude hangs on the line

Looking at prices, whether it is the WTI or Brent, one would notice the recent dip in prices ahead of the OPEC+ meeting had taken them to the uptrend support. WTI and Brent had pulled back approximate 2.5% and 4.8% respectively into the Wednesday Asia session, though somewhat steadying into the day. With OPEC+ decision highly uncertain presently, it may mean that both crude prices and energy stocks could react either way to the final update. A dip past the uptrend support for the below may suggest that prices will be taking a breather from here to establish a new trend forth.