Crude oil dip on profit-taking after OPEC+decision

OPEC

Crude oil futures edged lower in mid-morning trade in Asia on Wednesday amid investor profit-taking after Brent crude overnight settled at its highest level since late November on an affirmation of firm oil market fundamentals by the OPEC+ producer group.

At 10:05 am Singapore time (0205 GMT), the ICE March Brent futures contract was down 27 cents/b (0.34 per cent) from the previous close at $79.73/b, while the NYMEX February light sweet crude contract was down 24 cents/b (0.31 per cent) at $76.75/b, according to S&P Global Platts.

OPEC and its Russia-led partners on Tuesday approved another hike in production quotas, betting the market can absorb more oil in the coming months despite surging COVID-19 infections worldwide.

In affirming a 400,000 bpd output increase for February on Jan. 4, the OPEC+ alliance signaled continued confidence that the omicron variant will have a smaller impact on global oil demand than previously assumed.

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“There were no surprises from OPEC+ yesterday. The move provides some comfort to the market as it signals that they are confident with the demand outlook in the coming months. As a result, Brent managed to settle at $80/b yesterday, the highest level since late November,” ING analysts Warren Patterson and Wenyu Yao said in a Jan. 5 note.

Sentiment was also weighed by data showing a build in US gasoline stocks last week by 7.06 million barrels, while distillate stocks increased by 4.34 million barrels, according to the American Petroleum Institute, media reports indicated.

Overall, the API report was mixed as US crude oil inventories drew by 6.43 million barrels.

Nonetheless, recent comments by public health officials continue to indicate the omicron variant of the coronavirus was less severe than previous strains. WHO Incident Manager Abdi Mahamud said Jan. 4 there was a “decoupling” between case numbers and deaths due to the milder symptoms of omicron.

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“We are seeing more and more studies pointing out that Omicron is infecting the upper part of the body. Unlike the other ones that could cause severe pneumonia,” WHO Incident Manager Abdi Mahamud said in Geneva.

Analysts said oil prices going forward will be falling back more on fundamentals as the afterglow of the year-end festivities wane.

“The second trading day of the New Year marks the end of the Santa rally. Wall Street knows the first quarter of the year will be all about ramping up Fed rate hike expectations as investors assess the impact of elevated energy prices, surging Treasury yields, and the never-ending focus of new COVID variants,” said OANDA senior market analyst Edward Moya.

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