WTI Futures Top $66 on Supply Limits

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange skyrocketed on Friday, with both benchmarks closing out the week at their highest valuations since December 2019. Futures were propelled by an unexpected monthlong extension of reduced crude production by the Organization of the Petroleum Exporting Countries and Russia-led partners announced Thursday, with oil values further underpinned by an accelerated pace of reopenings in parts of the United States, where several states have announced plans to lift restrictions on businesses and social mobility.

Texas, Connecticut and Mississippi this week announced the rollback of business restrictions that remained in effect for nearly a year as the country battled the coronavirus pandemic. Connecticut Gov. Ned Lamont (D) on Thursday lifted a travel ban, allowed restaurants to operate at full capacity and removed regulations on sports and entertainment venues. A sharp decline in new COVID-19 infections and an accelerated pace of vaccinations against the disease prompted businesses to rehire staff ahead of expected reopenings in the spring.

U.S. Bureau of Labor Statics reported Friday morning the economy added 379,000 new jobs in February, while also revising the previous month's figure upward by 117,000. Notable gains in payrolls occurred in leisure and hospitality, reflecting reopenings and relaxing capacity restrictions occurring across the country.

The data bodes well for gasoline consumption, where high unemployment and ongoing restrictions have weighed heavily on driving demand. Energy Information Administration reported gasoline supplied to the U.S. market, a measure of demand, jumped above 8 million barrels per day (bpd) in the most recent week -- a trend that is likely to continue amid a push to reopen schools and businesses.

Despite these green shoots in domestic consumption patterns, OPEC+ agreed Thursday to roll over most of their 7.01 million bpd in crude production cuts into April, sending prices soaring to levels not since late 2019. Saudi Arabia, meanwhile, announced it would keep its unilateral 1 million bpd production cut in place, citing "many uncertainties in the global oil market." Saudi oil minister Abdulaziz bin Salman Al-Saud dismissed signs of a stronger market, telling reporters at a news conference on Thursday, "he will believe it when he sees it."

OPEC+'s decision caught many in the market off guard, as a growing number of oil producers were aiming to increase exports. Russia and Kazakhstan have been allowed to boost output by a joint 150,000 bpd in April, but the extra volumes will likely be consumed domestically due to seasonal patterns. Otherwise, the agreement keeps 8 million bpd of OPEC+ supply off the market, roughly 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.

On Friday, Goldman Sachs raised its Brent crude price forecast by $5 to $75 per barrel (bbl) in the second quarter and $80 per bbl in the third quarter, and UBS lifted its Brent forecast to $75 per bbl and West Texas Intermediate to $72 for the second half of 2021.

On a session, NYMEX WTI April crude rallied $2.26 to settle at $66.09 per bbl and Brent crude futures for May delivery surged $2.62 to $69.36 per bbl. NYMEX April ULSD contract advanced 4.80 cents to $1.9440 gallon, and front-month RBOB surged 6.68 cents, or 3.6%, to $2.0698 gallon -- the highest trade since July 2019.

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

Liubov Georges