WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced to their highest settlements in over a year on Thursday after the Organization of the Petroleum Exporting Countries and Russia-led partners surprised the market by extending most of their steep production curbs into April, while Saudi Arabia continued with its unilateral 1 million barrels per day (bpd) cut, meaning the alliance will continue to withhold nearly 8% of global supply off the market.
On the session, NYMEX West Texas Intermediate April crude rallied $2.55 to settle at $63.83 barrel (bbl) and Brent crude futures for May delivery advanced $2.67 to finish just below $67 bbl at $66.74 bbl. Both crude contracts settled the session at the highest levels since Jan. 8, 2020, when prices spiked in response to the assassination of Iranian General Qasem Soleimani by the United States.
NYMEX April ULSD contract surged 6.03 cents or 3.5% to $1.8960 gallon and front-month RBOB advanced 4.61 cents to $1.9979 gallon -- the highest settlement since July 2019.
After a muted start to the session, oil futures quickly picked up steam after OPEC+ announced Saudi Arabia would maintain its unilateral 1 million bpd production cut for a third month through April, while OPEC+ members agreed to rollover most of their 7.01 million bpd cuts into April. Russia and Kazakhstan again received special consideration and were allowed to boost crude output by a joint 150,000 bpd in April after 75,000 bpd combined increase for February and March, with Moscow indicating it needed greater output due to climbing domestic demand.
When combined with the Saudis unilateral cut, OPEC+ is withholding over 8 million bpd from the global oil market -- the same amount of output it restrained from producing in early summer 2020 when major economies in the West first emerged from pandemic-caused spring lockdowns.
Global oil demand is now estimated some 9% below its pre-pandemic level after collapsing 30% a year ago, with most losses centered in jet fuel consumption due to still lackluster international travel. In the United States, the world's largest oil consumer, traffic activity and manufacturing output reached near pre-pandemic levels in February as vaccine efforts picked up pace.
Unplanned production outages in Texas and Oklahoma and neighboring states last month further tightened the global oil market, while undermining prospects for a recovery in tight oil production. Morgan Stanly estimates the oil market has been 2.8 million bpd undersupplied so far this year. If sustained, the first quarter could turn out to be the most undersupplied quarter since at least 2000. Industry insiders suggest OPEC+ are the only producers that can boost output without boosting capex, meaning the alliance is now in control of all global spare capacity.
Liubov Georges can be reached at email@example.com