On Monday, February 1, oil with a neutral data background added about 0.5 percent to the mark. Low vaccination coverage and the advent of new variants of coronavirus face short-term demand-side threats on the one hand. At the same time, Saudi Arabia’s unilateral reduction in supply by 1 million barrels per day, beginning on Monday, helps the oil market to be balanced. The U.S. drilling activity figures on Friday, which indicated an improvement in active drilling rigs, did not show a significant effect on market trends.
After already gaining more than 7.5 percent in January, oil ended sharply higher. On Monday, on Nymex, the March futures contract for WTI crude oil rose 2.6 percent to $53.55, while April-due Brent advanced 2.4 percent to $56.35. Prices have also been helped by a Goldman Sachs note predicting a weak-supply global oil market in 2021.
The low levels of population vaccination, as well as the advent of new strains of coronavirus, about which short-term threats to the oil industry persist at a high level, are a major limiting factor for the sustained growth of oil prices. Thus, in Europe, less than 5% of the population is actually vaccinated owing to delays in the delivery of vaccinations, which is considerably lower than the forecast value. The rebound in oil demand in this respect could be slower than initially anticipated. The persistent mutation of the virus and the local epidemic are both worth mentioning, which are both being quarantined in many countries by policies restricting population mobility and, as a result, oil production.
It is interesting that since the implementation of lockdown in China, there was a decline in market investment in both the manufacturing and non-manufacturing industries. Thus, in January, the NBS Manufacturing PMI index dropped by 0.6 pp. to 51.3 points, which was lower than the 51.6 point consensus estimate, and the Non-Manufacturing PMI index fell by 3.3 pp. to 52.4 points.
Simultaneously, Saudi Arabia’s decision to voluntarily cut its oil production by 1 million barrels a day in February-March is an optimistic factor for the oil industry, helping it to balance the demand that is dropping due to the pandemic. As a result, the number of OPEC+ production constraints will be 8.125 million b/d instead of 7.2 million b/d in February.
As far as oil industry figures are concerned, data from oilfield services firm Baker Hughes on fracking operation in the U.S. was published last Friday. Thus, according to the results of the week ended 29 January, the number of active drilling rigs in the country rose by 6 units to 295 units, but this did not have a significant effect on oil price dynamics.
This week, a meeting of the technical committee of OPEC+ will be held. It is expected that there can be no proposals to adjust the terms of the deal, although it could be of concern to determine the current situation in the oil sector.