Oil Prices Up as US Stockpiles Drop, OPEC Meeting Nears

In advance of an OPEC+ meeting where the group is anticipated to confirm existing production curbs, oil saw a spike in price following an industry report indicating a decline in US crude stocks. After closing at its highest level in October, Brent crude was at $89 a barrel on 2nd April 2024, while West Texas Intermediate was at $85.

According to people in this field, the American Petroleum Institute reported that the nationwide stockpiles had fallen by more than 2 million barrels in the last week. Before the official statistics were released later today, the estimates also indicated a decrease in distillate and gasoline stockpiles.

Today, OPEC and its allies are expected to review crude markets and its supply policy in an online meeting. It is also predicted that the member nation officials will keep their strategy unchanged. Crude has pushed its prices this year because of the tension between Russia, Ukraine, and the Middle East.

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Even though some members have been slow to fulfill their agreed-upon limits in total, and as Russian shipments rise, OPEC's limitations have been tightening the market. An analyst of the Commonwealth Bank of Australia, Vivek Dhar, said, "With OPEC+ already extending its voluntary production cuts until mid‑year, the virtual OPEC+ meeting later today will likely just reaffirm the group's current policy."

He continued, stating, "Brent oil futures should track closer to $75 to $80 a barrel in coming months given our view that China's oil demand growth will disappoint." In the meantime, traders are becoming more confident in the oil options markets as they try to hedge against higher prices.

The typical put skew of Brent's second-month options, preferred by producers looking to hedge against price declines, has changed to a call-biased slant. That occurs when timespreads enter a deeper state of backwardation, another sign of strength.

Where are Crude Oil Prices Headed?

Many banks are estimating how crude oil could head in the coming weeks. In the last week of March, JPMorgan Chase and Company estimated that crude could hit $100 a barrel if Russia's decision to cut output is not efficiently balanced using other means and measures. 

According to analysts, as one attempts to anticipate clarification on the supply-demand balance, oil prices are locked in the region of their consolidation from the previous week.

Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd, said, "Supply-side factors so far have dominated the prices moves due to Russia-Ukraine attacking each other's energy infrastructure, the Israel-Hamas war continues in the middle-east, and Houthi's disrupting the supply via red sea with frequent attacks of ships/ cargos."

To Summarize

With US oil stocks declining and oil prices rising, all eyes are on the OPEC meeting that is about to take place and potentially influence market dynamics. Amidst escalating supply worries and simmering geopolitical tensions, parties anxiously anticipate the cartel's choices. The combination of these elements points to a critical juncture in the energy sector when calculated moves in production and policy have the potential to impact the world economy's future directions significantly.