Oil falls as Suez opens, focus turns to OPEC+ output cuts

Both crude benchmarks drop over 1% on weak demand prospects

LONDON:

Oil prices slid on Tuesday as the Suez Canal reopened to traffic, while focus turned to an OPEC+ meeting this week that is likely to agree an extension to supply curbs amid disappointing demand prospects.

Brent crude was down $0.73, or 1.1%, at $64.25 a barrel by 1226 GMT. US oil was off by $0.83, or 1.4%, at $60.73 barrel.

Ships were moving through the Suez Canal again on Tuesday after tugs refloated the giant Ever Given container carrier, which had been blocking a narrow section of the passage for almost a week, causing a huge build-up of vessels around the waterway.

With concerns about a shortage of physical supplies abating, the market is turning its focus to Thursday’s meeting of the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia, collectively known as OPEC+.

Saudi Arabia is prepared to accept an extension of production cuts through June, and is also ready to prolong voluntary unilateral curbs amid the latest wave of coronavirus lockdowns, a source briefed on the matter said on Monday.

“The wobble we have seen in prices means that OPEC+ will likely need to take a cautious approach once again,” ING bank said. “We are of the view that the group will likely hold output levels unchanged, with OPEC+ wanting to avoid another sell-off,” it added.

Renewed lockdowns and problems with vaccinations could prevent the recovery of up to 1 million bpd of oil demand in 2021, Rystad Energy said.

Stymieing efforts to contain global supply are rising under the radar exports from OPEC member Iran to China, which is ignoring US and United Nations sanctions on the country and importing higher amounts of Iranian oil, according to traders and analysts.

China may receive as much as 1 million barrels a day this month in imports from Iran passed off as crude from other origins.

A US dollar rally also weighed on oil prices. As crude is priced in dollars, a stronger greenback makes the commodity more expensive to holders of other currencies.