Prices could rise if OPEC+ decides to cut output in February, but gains could be limited by new concerns over COVID-related lockdowns.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday on reports of a document that said the OPEC+ group is studying a possible production cut in February. Simmering tensions around Iran’s seizure of a South Korean vessel are also underpinning prices.
At 10:03 GMT, February WTI crude oil futures are trading $47.99, up $0.37 or +0.78% and March Brent crude oil futures are at $51.33, up $0.25 or +0.49%.
Both futures contracts are trying to claw back yesterday’s more than 1% losses that were fueled when OPEC+ failed to reach an agreement on changes to February’s oil output.
OPEC+ Studies February Output Cut Among Other Options – Document
The OPEC+ oil producer group is studying a 500,000 barrel per day output cut for February, and three other scenarios which include stable production or an increase of 500,000 bpd, according to an OPEC document dated January 4 and seen by Reuters.
OPEC+ sources told Reuters that Russia and Kazakhstan backed raising production by 0.5 million bpd while Iraq, Nigeria and the United Arab Emirates suggested holding output steady.
An internal OPEC document, seen by Reuters on Tuesday and dated January 4, suggested a 0.5 million bpd cut in February as part of several scenarios considered for 2021.
The documents also said that the OPEC+ joint ministerial committee highlighted bearish risks and “stressed that the reimplementation of COVID-19 containment measures across continents, including full lockdowns, are dampening the oil demand rebound in 2021”.
On Monday, Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ should be cautious, despite a generally optimistic market environment, as demand for fuels remained fragile and variants of the coronavirus were unpredictable.
Simmering Tensions over Iran’s Seizure of South Korean Vessel
Tensions around OPEC member Iran’s seizure of a South Korean vessel continued on Tuesday, with Iran claiming the Asian country owed it $7 billion.
An Iranian government spokesman on Tuesday rejected allegations that Iran’s seizure of a South Korean vessel amounted to hostage-taking, and said was it was South Korea that was holding $7 billion of Iran’s funds “hostage”.
“We’ve become used to such allegations…but if there is any hostage-taking, it is Korea’s government that is holding $7 billion which belong to us hostage on baseless grounds,” spokesman Ali Rabiei told reporters at a news conference streamed live online.
Prices could rise if OPEC+ decides to cut output in February, but how high will be determined by the size of the cut, which could be as much as 500,000 barrels per day. However, gains could be limited by new concerns over COVID-related restrictions and lockdowns. Sending the biggest bearish signal was England which went into a new lockdown on Monday as its COVID-19 cases surged.
“Near-term demand growth is stalling due to the resurgence of COVID-19 across North America, Europe and the Middle East and is likely set for deeper declines over the next several months,” Fitch Solutions said, adding that Brent is expected to average $53 a barrel this year.