What Will OPEC+ Do?


Looking at the price action in oil yesterday, one wouldn’t think that we saw the largest US crude oil build on record, with stocks increasing by almost 21.6MMbbls over the last week. However, offsetting this large build were significant draw downs in refined product stocks, with the effects of the freezing cold weather conditions that we saw across the US Gulf Coast in February still coming through in the data. Crude oil production is estimated to have started to make a recovery, with it increasing by 500Mbbls/d over the week, whilst similarly crude oil imports increased by almost 1.7MMbbls/d. Refiners as expected are taking longer to get back online, and in fact refinery utilization fell by 12.6 percentage points to just 56% over the week, the lowest utilization rate on record, going as far back as 1980. As a result, crude oil inputs fell by more than 2.3MMbbls/d over the week, whilst the lower throughput did obviously have an impact on the refined product markets. Gasoline and distillate fuel oil inventories declined by 13.62MMbbls and 9.72MMbbls respectively, and it is these large product draws which have offered support to the market.

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Further support for the market probably came from a Reuters report that suggested that OPEC+ may decide to roll over current output levels into April when they meet later today. This would be somewhat of a surprise to the market, with expectations that the group would ease by 500Mbbls/d, along with Saudi Arabia ending its additional voluntary cuts of 1MMbbls/d. We believe that the market would be able to easily absorb this additional supply from April onwards. In fact, the market would likely be able to manage even further easing, but it probably wouldn’t be wise of OPEC+ to ease much more than the market is expecting, given the potential price impact of doing so. 


Another tantrum in the bond market spread jitters across the metals complex yesterday. LME nickel fell more than 7.5% to an intraday low of US$17,220/t (the lowest since 12 January). Expectations of tightness in nickel mine supply and class 1 nickel have taken a backseat following two developments on the supply side. Firstly, Russian producer, Norilsk Nickel reported progress in resuming operations at a suspended mine by next week. Nornickel partially suspended output at its Oktyabrsky mine and the interconnected Taimyrsky operations last week after water inflows. However, management has said it plans to stabilize water inflows and resume operations by 9th March. Prior to this,  the mine also struggled when an ore loading roof collapsed during repairs. Secondly, China’s Tsingshan Holdings Group Co. agreed to supply nickel matte for electric-car batteries to Huayou Cobalt Co. and CNGR Advanced Material Co. The company expects nickel output to reach 600kt in metal equivalent this year, 850kt next year and 1.1mt by 2023.

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