(Bloomberg) -- Oil dipped in New York as technical indicators signal prices are due for a pullback following a strong rally this month.
The market is pricing in a strong short-term deficit, according to oil trader Vitol Group. But uncertainty remains over when demand will come back in force, and U.S. production is resuming in Texas after the cold snap. Crude is still lingering in overbought territory after a 18% jump so far this month.
“After a $2 rally yesterday,” it was hard to sustain further gains, said Peter McNally, global head for industrials, materials and energy at Third Bridge. Still, “if the combination of seasonal demand, vaccine rollouts and ongoing supply constraints all conspire, it looks like inventories will continue to decline.”
Bank of America joined others in boosting its Brent price outlook for 2021, expecting a ceiling price of $70 a barrel amid tightening supplies. Money is flooding into the space, with the aggregate open interest on Brent futures hitting a fresh record high.
Meanwhile, Saudi Arabia and Russia will once again head into an OPEC+ meeting with differing opinions about adding more crude to the market, potentially pressuring the recent rally. Riyadh is calling for caution while Moscow appears to favor a supply hike. The group will meet March 4 to discuss whether to provide more crude to the market in April.
“It’s unmistakable that we’ll see some increase, but how much we get” is still uncertain, said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis. “The Saudis like this price level a lot, because it’s high enough where they generate good levels of income but low enough to where they don’t anticipate a huge pickup in U.S. production.”
Prices
- West Texas Intermediate for April edged 3 cents lower to settle at $61.67 a barrel
- Brent for April settlement gained 13 cents to end the session at $65.37 a barrel
U.S. crude inventories likely fell last week amid the polar blast, according to a Bloomberg survey. The industry-funded American Petroleum Institute will report its figures later Tuesday ahead of U.S. government data on Wednesday.
However, crude production from the Texas portion of the Permian Basin has rebounded significantly to around 2.9 million barrels a day, from just 600,000 to 700,000 exactly a week ago, according to Bert Gilbert, head of North American business development at oil-data analytics startup OilX. Typically, the area produces roughly 3.5 million barrels a day.
“This recovery is largely due to a return of electricity to the region,” Gilbert said.
Other energy infrastructure impacted by the U.S. deep freeze is also in the process of restarting. Plains All American Pipeline LP plans to restore normal operations at 16 oil pipelines after notifying users last week of a force majeure, according to a person familiar with the matter, while at least eight refineries in Texas were trying to restart as of early Tuesday, with varying degrees of success.
Other oil-market news:
- Apollo Global Management Inc. and Global Infrastructure Partners are among suitors that bid for a roughly $10 billion stake in Saudi Aramco’s oil pipelines, people familiar with the matter said.
- U.S. shale explorers lost hundreds of millions of dollars in oil production from last week’s historic freeze that crippled Texas and left millions without power or water for days.
- California is beginning to feel the ripples of oil refinery shutdowns in Texas, with gasoline prices rising faster in the Golden State since a deep freeze crippled fuel-making plants on the Gulf Coast.
--With assistance from Sheela Tobben.
© 2021 Bloomberg L.P.
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