Oil prices vault towards $70 as the OPEC-fueled crude rally continues

Saket Sundria March 05, 2021
Saudi Aramco production facility
Saudi Aramco production facility

(Bloomberg) - Oil rallied toward $70 a barrel after OPEC+ chose not to relax supply curbs even as the global economy pulls out of its pandemic-driven slump, confounding widespread expectations the group would loosen the taps.

The surprise decision spurred a wave of crude price forecast upgrades by major banks. The producer alliance agreed to hold output steady in April, while Saudi Arabia said that it will maintain its 1 million barrel-a-day voluntary production cut.

Crude has soared this year, shepherded higher by OPEC+ restraining supplies and the vaccine-aided recovery in consumption that’s drained inventories. The group’s decision represents a victory for Riyadh, which has advocated for restraints to keep prices supported. However, the rally could spur drilling activity by U.S. shale explorers, and stoke global inflationary pressures.

The Organization of Petroleum Exporting Countries and its allies including Russia had been debating whether to restore as much as 1.5 million barrels a day of output. As part of the agreement, which was struck at a virtual meeting on Thursday, Russia and Kazakhstan were granted exemptions. The group’s next meeting is set for April 1 to discuss production levels for May.

“Crude’s spike was a knee-jerk reaction to a shocking OPEC+ decision,” said Vandana Hari, founder of Vanda Insights in Singapore. Saudi Arabia’s optimism over U.S. shale remaining subdued appears plausible for the time being, but “the kingdom might be pushing its luck if it pursues the hawkish path for too long,” she said.

Oil’s rapid gains stand to intensify the global debate about the potential resurgence in inflation, and complicate the task facing the Federal Reserve as it seeks to sustain the U.S. recovery. The Treasury market is already on edge for signs of faster price gains, with benchmark yields rising rapidly.


  • Brent for May settlement traded down 0.3% at $69.18 a barrel as of 10:16 a.m. London time, after climbing as high as $71.38 earlier
  • West Texas Intermediate for April delivery also slipped 0.3% to trade at $65.92
  • WTI earlier hit its highest intraday level since October 2018

Goldman Sachs Group Inc. raised its Brent forecasts by $5 a barrel and now see the global crude benchmark at $80 in the third quarter. JPMorgan Chase & Co. increased its Brent projection by $2 to $3 a barrel and Australia & New Zealand Banking Group Ltd. boosted its three-month target to $70. Citigroup Inc. said crude prices could top $70 before the end of this month.

Oil rising to these levels will likely increase strains within OPEC+ as some members will want to pump more to relieve under-pressure economies, Citi said in a note. Top importers such as China and India would also not be happy and the alliance is likely to change course at its next meeting, it said.

The lack of fresh supply was reflected in oil’s futures curve. Brent’s prompt timespread widened to 59 cents in backwardation, a bullish structure where near-dated prices are higher than later-dated ones, from 54 cents Thursday.

More evidence of the demand recovery continued to emerge, especially in Asia. Gasoline and diesel consumption in China has extended its run above pre-virus levels this year after the faster-than-expected return of factory activity and infrastructure building following the Lunar New Year holiday.

In addition to the fallout from the OPEC+ shock, investors will also look to commentary on Friday from China’s National People’s Congress, the nation’s biggest political meeting of the year. The gathering carries added significance this year with the Communist Party’s unveiling of its new five-year plan.

Related news:

  • Major oil sands producers in Western Canada will idle about half a million barrels a day of production next month, helping tighten global supplies as oil prices surge.
  • The impact of the pandemic in Brazil and Mexico is cooling demand for gasoline and diesel in two top markets for U.S. refiners.

Click here to subscribe to the World Oil energy newsletter, and receive exclusive industry news and analysis in your inbox each weekday.

Connect with World Oil
Connect with World Oil, the upstream industry's most trusted source of forecast data, industry trends, and insights into operational and technological advances.