Upside potential exists for crude oil

Brent crude oil prices have surged sharply by about 19% over February-2021 moving above the USD 65 per barrel mark but have subsequently corrected marginally lower over the last few trading sessions.

The US crude oil inventories decreased by 23.52 million barrels per day over month on month basis and remain at 462 million barrels level for week ending 19-February-2021. The current level is in line with the five-year seasonal average.

The total gasoline inventory rose by 11.88 million barrels per day over month on month basis and remains at 257.09 million barrels per day for week ending 19-February-2021. The inventory still remains at about 3% above the five-year seasonal average.

The crude oil output fell by 1.3 million barrels month on month basis to 9.7 million barrels for week ending 19-February-2021 amid an unprecedented polar blast that acted as main catalyst for surge in WTI prices over February. 

First, a severe winter storm in the state of Texas worked to halt shale oil production facilities subsequently resulting in a 4% reduction in US output. The net result was a further widening in the demand-supply imbalances that were already in deficit in Q12021 prior to the storm.
OPEC meeting is unlikely to correct demand-supply imbalances: Back in April-2020, OPEC+ members took the decision to cut production by a record 10% to support prices that had fallen quite sharply to record low levels.

This was followed by a plan to gradually increase supply in small increments on a monthly basis over the course of 2020-21 as demand conditions were expected to gradually improve. However, in the January-2021 meeting the plans to increase production levels by 0.5 million barrels per day in Q12021 was postponed to April-2021.

Besides, in that meeting Saudi Arabia delivered a voluntary 1 million barrels per day voluntary cut. The supply cuts resulted in an excess of demand to the tune of 2 million barrels per day that has worked as the primary catalyst driving prices higher.

In the upcoming OPEC+ meeting that is due to be held on 4-March-2021, focus will be on whether there will be a further adjustment in supply for crude given the sharp rise in prices seen in 2021.
Investors expect that demand will outstrip supply have ensured that a sharp uptrend remains intact irrespective of the overall risk environment in the global markets.

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