Oil touches multi-month highs as OPEC+ expected to hold output steady

LONDON (Reuters) – Oil prices touched multi-month highs on Monday on expectations OPEC and allied producers will hold off on increasing output in February and on hopes that vaccines may curb the spread of the novel coronavirus and drive an economic rebound.

FILE PHOTO: The sun sets behind the chimneys of the Total Grandpuits oil refinery southeast of Paris, France, February 29, 2016. REUTERS/Christian Hartmann/File Photo

Benchmark Brent crude futures reached $53.33 a barrel, their highest since March 2020, as prices rose in line with broader financial markets.

U.S. West Texas Intermediate (WTI) crude touched $49.83 a barrel, its highest since February 2020.

“Price action today suggests that the market is assuming that OPEC+ keeps the level of cuts unchanged for the upcoming month,” said ING commodities strategist Warren Patterson.

Prices later trimmed gains, with March Brent crude futures at $52.23 a barrel, up 43 cents or 0.8%, as of 1501 GMT. February WTI crude futures were up 20 cents, or 0.4%, to $48.72.

“The likely extension of mobility restrictions across several European countries might have been a trigger causing oil prices to erase earlier gains,” UBS analyst Giovanni Staunovo said.

OPEC and allies, a group known as OPEC+, were meeting on Monday. Most OPEC+ officials voiced opposition to increasing oil output from February when they met on Sunday, three OPEC+ sources told Reuters on Monday.

OPEC+ increased output by 500,000 barrels per day (bpd) this month but some members have questioned the need to increase more from February due to an upsurge in the COVID-19 pandemic.

“The start of the new year is presenting challenges to the OPEC+ group, as the balance of risks to oil demand recovery has changed,” BNP Paribas analyst Harry Tchilinguirian said.

Kuwait’s oil minister said he expected a gradual recovery in oil demand, particularly in the second half of 2021, as many countries start to distribute coronavirus vaccines.

Britain began vaccinating its population with the COVID-19 shot developed by Oxford University and AstraZeneca on Monday.

Tensions in the Middle East also supported oil prices after Iran’s Revolutionary Guards seized a South Korean-flagged tanker and its crew were detained and accused of polluting the Gulf with chemicals.

Oil also drew strength from a weaker dollar and strong manufacturing activities in Asia and Europe. U.S. factory activity data is expected later on Monday.

For a graphic on Oil price forecasts for 2021:

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