WTI surges above $89.00 to fresh seven-year highs on anticipation that OPEC+ presses ahead with 400K BPD output hike

• WTI rallied above $89.00 to hit fresh seven-year highs as OPEC+’s JMMC recommended a 400K BPD output hike in March.
• The OPEC+ meeting is now underway and expected to confirm this recommendation.
• Oil price upside reflects a pricing out of bets that the group would hike output by more than 400K BPD.

Oil prices popped higher in recent trade, with front-month WTI futures surpassing the $89.00 level to hit fresh seven-year highs as OPEC+’s Joint Ministerial Monitoring Committee (JMMC) recommended a 400K barrel per day (BPD) output hike in March. WTI even managed to briefly advance above the $89.50 level and eye a test of the $90 per barrel mark for the first time since October 2014, though has since dropped back a little. The recommendation from the JMMC, which always meet (though don’t always make a policy recommendation) ahead of OPEC+ meetings, suggests the group will stick to its policy of increasing output by 400K BPD each month.

The positive market reaction likely reflects a pricing out of bets that the group would agree to lift output by more than 400K BPD due to higher prices and strong demand. Attention now turns to the meeting of OPEC+ oil ministers, which just started, who will be expected to take the JMMC’s recommendation. A principal concern that has helped to lift oil prices in recent weeks, noted analysts at UniCredit, “is that many (OPEC+) members are unable to deliver on their quotas due to a lack of spare capacity as a result of years of underinvestment”. “If Saudi and Russia show any signs of raising their production to shoulder shortfalls of some members who cannot meet their output targets, oil prices will likely fall” warned another analyst. “But if there are no such surprises” they continued, “the market is expected to keep a bullish trend as demand is recovering and geopolitical tensions linger”.

Elsewhere in relevant oil market news, weekly private API inventories on Tuesday revealed a surprise drawdown of oil inventories of 1.6M barrels versus expectations for a 1.5M barrel build. Analysts said this has also contributed to recent WTI upside, though, notably the same data also showed a much larger than expected build of 5.8M barrels (versus 1.6M expected) in US gasoline inventories. Oil traders now look ahead to official weekly US EIA numbers out at 1530GMT for confirmation. Separately, another theme worth monitoring is US weather. The centre and Northeast of the US is expected to be hit by a major winter storm this week which is predicted to bring heavy snow and freezing temperatures – analysts have noted this is likely to boost near-term energy demand.