Oil Futures Back Off Highs Even as OPEC+ May Forgo Hike

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In early trading on the first day of the new year, crude and refined product futures on the New York Mercantile Exchange and Brent contract on the Intercontinental Exchange moved mixed, backing off fresh highs, with the international crude benchmark trading near $52 per barrel (bbl) as OPEC+ is expected to leave production quotas unchanged in February, as the coalition of oil ministers and officials consider skipping a production hike for next month amid rising COVID-19 cases and a slower-than-expected rollout of immunization campaigns in the United States and the European Union.

Major economies in the West have missed their targets for widespread inoculations against COVID-19 at the start of 2021, with France -- one of the hardest hit countries by the pandemic, administering only a few hundred doses so far, which compares with tens of thousands in Germany and nearly a million in the United Kingdom. Domestically, the lack of a unified federal approach towards an immunization campaign created confusion and supply bottlenecks in some states, prompting criticism from top health officials and politicians on both sides of the aisle.

The United States has administered nearly three million doses in the final weeks of 2020, according the figures published by the Centers of the Disease Control and Prevention versus the 20 million targeted by the federal government. Meanwhile, China has vaccinated over 4.5 million people and Israel has become the front-runner in the number of doses administered per 100 people.

Additionally, a new variant of the virus found in the UK and South Africa combined with family gatherings around the holidays are expected to lead to a further rise in COVID-19 cases that pressure hospital capacity, with even Japan and Korea now considering tightening restrictions.

The smooth rollout of the COVID-19 vaccines is critical for the fast recovery in global oil demand this year as a persistent surge in hospitalizations and virus-related deaths are likely to dampen mobility and air travel after a pickup in activity in December.

OPEC+ oil ministers are unlikely to shrug off these developments, according to some analysts, with the 23-nation producer group now seen forgoing a 500,000 barrel per day (bpd) production increase for February when they meet Monday. OPEC+ is currently maintaining cuts at 7.2 million bpd, with a 500,000-bpd output hike taking place on Jan. 1.

Russia was the only member of the coalition that has publicly called for production increase in February, cautioning the recent price rally warrant additional supplies on the market.

"To restore our output, that we've reduced a lot, the price range of $45 to $55 a barrel is the most optimal," Deputy Prime Minister Alexander Novak told reporters in Moscow. "Otherwise we'll never restore production, others will restore it."

In early trading, NYMEX February West Texas Intermediate futures eased 22 cents to trade $48.33 bbl, and ICE March Brent futures trading near $52 bbl at $51.87 bbl. NYMEX February ULSD contract advancing 0.78 cents to trade near 1.4916 gallon. NYMEX RBOB contract for February delivery traded little changed at $1.4067 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges