Oil rises above $62 after Saudi Oil Minister urges OPEC supply caution

Oil traded above $62 a barrel in New York after Saudi Arabia’s oil minister urged caution from producers as they gathered virtually.

West Texas Intermediate added 1.8%, while Brent also climbed. OPEC+ should keep its powder dry, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said at the start of the ministerial meeting. He urged caution and vigilance from oil producers.

Saudi Arabia and Russia, the most influential members of the Organization of Petroleum Exporting Countries and its allies, held talks on Wednesday to seek common ground on production as Riyadh urged caution and Moscow sought to increase supply, a delegate said.

Oil started the day strongly amid gathering tensions in the Middle East after Yemen’s Houthi rebels claimed attacks on Saudi targets. The rebels, who are backed by Iran, said they bombed an airbase in Saudi Arabia’s southwest with a drone and hit a Saudi Aramco crude facility in Jeddah. Aramco and Saudi officials didn’t immediately respond to requests for comment.

Oil prices signal uncertainty over OPEC+ move amid Saudi-Russia tussle

But the crux of the market’s focus Thursday will be on OPEC+. Crude has rebounded this year after the group and its allies slashed output to drive a rebalancing of the market following last year’s virus-induced slump. The aggressive supply management has helped to drain inventories, while worldwide demand is recovering with the roll-out of vaccines. That’s spurred expectations that OPEC+ will now loosen the taps.

“The challenge is perfecting the timing of output hikes,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. “Demand will increase in the coming months, but it could happen in April, or it could happen later on.”

Veteran OPEC-watchers expect some extra barrels from the group, and there’s little chance output will be held at current levels, but delegates said several options are still on the table.

There are two elements to the debate: first, will the cartel proceed with a 500,000-barrel-a-day collective output hike in April? Second, how will Saudi Arabia phase out the extra supply reduction of 1 million barrels a day it’s been making voluntarily?

Heading into the meeting, traders will be mindful that Saudi Arabia has developed a liking for bullish surprises. Energy Minister Prince Abdulaziz bin Salman triggered a surge in prices at the January session by springing a unilateral production cut on an unsuspecting market. Citigroup Inc. has advised its clients not to make bets on this OPEC meeting as “there are too many wildcards,” according to Ed Morse, global head of commodities research.

The backdrop to the gathering is a slew of indicators that energy consumption is on the mend in key economies, alongside pockets of lockdown-related weakness. Among recent positive figures, data showed U.S. commutes are slowly returning to normal, while India’s fuel demand could rise to a record. At the same time, Europe’s roads remain quieter than normal.

Iran is reaching out to old customers in Asia to gauge interest in buying its oil as Tehran ramps up diplomacy to get sanctions lifted.

S&P Global Platts apologized to traders for the speed at which it announced an overhaul of a price that underpins a swath of the world’s oil transactions.

Asia’s diesel glut looks likely to worsen and may weigh on the profit margins of refiners as Indian processors seek to export more of the fuel and China is awash with a domestic surplus.