Oil prices declined on Tuesday as the reopening of the Suez Canal route relieved the vessel congestion and ensured that oil supply will flow again to Europe without extreme delays for deliveries.
Some shipments will indeed be late but not as much as some pessimistic scenarios projected just days ago, which was also the reason that prices rose while the market waited for the stuck vessel to be removed.
The price gains that accumulated during the Suez blockade were, as expected, short-lived and are now being erased with the gradual return to normal traffic.
The Suez blockade may have been a lasting comedy gold for the internet but it will soon be forgotten by the market, which is now shifting its attention to the upcoming OPEC+ meeting.
As usual, before every OPEC+ meeting, the market is looking for initial indications on where the alliance members stand on production heading into the meeting.
OPEC+ does not have an obvious “right” choice to make. The group is still in a mode of output curtailments, yet Saudi Arabia may be itching to bring back its voluntary cuts at some point.
Nevertheless it appears that the two poles of the producer consortium, Russia and Saudi Arabia, both see that oil demand is recovering at a slower pace than what was hoped for.
If reports that Saudi Arabia is ready to bite the bullet again and accept a prolongation of its production cuts prove true, other members are more likely to follow the same path, which would be bullish for prices.
Russia has come out of the past few meetings with a good deal, being allowed to increase production marginally while others kept flat. It remains to be seen if OPEC members will be again so lenient and not protest.
As the oil demand recovery will likely regain speed in the second half of 2021, maintaining a conservative approach to oil production could help prices stay in the mid-60s, if not slightly extend their gains.
OPEC+ rolling back some of the curtailed supply, on the other hand, could again drive prices to lower levels, adding to concerns due to the recent growth of Covid-19 cases.
Another market signal today to watch for is the reported US crude inventories estimates by API this evening. Another week of builds will show that the US is still reeling from the winter freeze or perhaps increased imports, but a draw would signal a return to the usual seasonal pre-summer crude inventory clear out.
Another big draw in products such as gasoline would be a promising demand signal for the US, or perhaps a residual effect from the spring break travel season.