Oil Down On Unblocked Canal As Analysts Now Focus on Thursday OPEC Meeting

Meanwhile, the Saudis are expected to maintain output cuts into June: File Image/Pixabay

As widely predicted, the reopening of the Suez Canal combined with a substantial rise in the U.S. dollar caused a drop in oil prices on Tuesday, as analysts now set their sights on any developments arising from a meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, on Thursday.

After it was revealed that the backlog of 422 ships on either side of the Suez Canal would be cleared in a matter of days (far shorter than the weeks-long process predicted by worried analysts) due to the Ever Given being refloated, Brent fell $1.20, or 1.9 percent, at $63.78 per barrel by 1:12 p.m. (1712 GMT).

West Texas Intermediate was down by $1.28, or 2.1 percent, at $60.28 per barrel.

ING said recent fluctuations in crude trading "means that OPEC+ will likely need to take a cautious approach once again; we are of the view that the group will likely hold output levels unchanged."

JP Morgan held a similar view, stating that the cartel would maintain production cuts into May and that Saudi Arabia would hold steady until the end of June: "We expect the alliance to start adding production in 500,000 barrels per day (bpd) increments beginning in June and lasting through August."

The stance of the Saudis was confirmed by a source briefed on the matter and who told media, "They don't see demand as yet strong enough and want to prevent prices from falling."

As far as OPEC is concerned, it is optimistic about market conditions in 2021: according to its latest supply and demand outlook being reviewed by a technical meeting on Tuesday, it expects oil inventories to drop by about 445 million barrels this year, larger than the implied 2021 stock draw of 406 million barrels predicted a month ago by OPEC.

Meanwhile, despite enormous gains produced by Covid vaccination programs in the U.S., the UK, and other countries, a botched rollout and corresponding rising infection rates in Europe continued to dismay analysts such as Torbjorn Tornqvist, the chairman and chief executive officer of Gunvor, who on Tuesday remarked, "Oil prices are going to stay where they are - $65 ish - give or take a bit.

"Given the development of the coronavirus, particularly in Europe, the demand growth has been much slower to come back; the U.S., actually, looks pretty good, but stocks are not coming down as fast as we thought."