Oil Rises On Disappointing Reaction To OPEC Output Boost

Analysts say the move is all about politics and little to do with declining stocks: File Image/Pixabay

Disappointment over the Organization of the Petroleum Exporting Countries' (OPEC) output hike in the face of rapidly depleting stockpiles globally caused oil on Thursday to rise yet again.

West Texas Intermediate rose $1.61 to settle at $116.87 per barrel, while Brent rose $1.32 to settle at $117.61 per barrel.

Earlier in the session, OPEC agreed to boost supply by about 50 percent to add 648,000 barrels after the European Union approved a partial ban on Russian oil imports; however, since the hike is spread across the group's member nations, members unable to raise production such as Angola, Nigeria, and Russia would still be allocated a higher quota – resulting in the actual supply boost being smaller than the official figure.

Jeff Currie, global head of commodities research at Goldman Sachs Group Inc., dismissed the OPEC hike, saying "It doesn't materially change anything," and he added that the decision merely compresses three production hikes into two months.

Amrita Sen, director of research at Energy Aspects, warned that OPEC's meagre production rise will still result in oil prices escalating: "It doesn't really solve the oil deficit," plus she pointed out that a lot of refineries have closed down, making it questionable to what extent the extra oil can be used.

Still, the move was applauded by the Joe Biden presidency in the U.S., which critics speculated was partly because Washington wants to turn de facto OPEC leader Saudi Arabia into an ally in its quest to economically isolate Russia. 

OPEC's announcement came at the same time the Energy Information Administration reported that U.S. crude stockpiles fell more than five million barrels last week and New York-area gasoline stockpiles fell to the lowest since 2017.

Specifically, stockpiles fell by 5.1 million barrels, compared with analysts' expectations in a Reuters poll for a 1.3 million-barrel drop, and the plunge further illustrates that despite what many pundits think consumers are still prepared to pay the punishing prices at the pump in order to maintain their independence behind the wheel of their automobiles.

In other oil related news on Thursday, Carsten Fritsch, analyst at Commerzbank, challenged Russia's boast that the European Union sanctions will have minimal if any effect on its economy.

In relation to the Kremlin saying it can re-route oil exports to minimize losses, Fritsch noted that "The extent to which this will prove achievable is questionable, [and] Russian oil production is therefore likely to fall again in the coming months."