Crude oil futures buoyed by OPEC+ quota hopes, but pandemic concerns persist

Singapore — 0253 GMT: Crude oil futures edged higher in mid-morning trade in Asia Jan. 5 on hopes that OPEC+ will maintain January production quotas into February, but the gains were tapered by concerns over tightening lockdown restrictions in Europe.

At 10:53 am Singapore time (0253 GMT), the ICE Brent March contract was up 10 cents/b (0.20%) from the Jan. 4 settle at $51.19/b, while the February NYMEX light sweet crude contract was up 17 cents/b (0.36%) at $47.79/b. The markers had fallen by 1.37% and 1.85%, respectively on Jan. 4.

A new year rise in oil prices lost traction when the Jan. 4 OPEC and non-OPEC ministerial meeting was adjourned to later Jan. 5 without an agreement on February production quotas.

The majority of OPEC+ members were reportedly in favor of maintaining the January production quotas into February, but were unable to budge Russia from its position that the coalition should increase crude production by 500,000 b/d in the month to reclaim market share lost to the pandemic, S&P Global Platts reported.

Nevertheless, with Saudi Arabia favoring maintaining the January quotas, market participants remained optimistic that OPEC+ will ultimately leave production unchanged in February, resulting in the oil markers clawing back some of their overnight losses in early Asia trade.

"Oil benchmarks are paring Monday's declines on hopes that the balance of power within OPEC+ could result in output levels being left unchanged in February ... such a decision could result in a lift for oil markets while potentially building a stronger $50/b floor for Brent futures," Han Tan, market analyst at FXTM, told Platts on Jan. 5.

"Still, the upside remains dampened by persistent pandemic woes, considering that major economies have ramped up virus-curbing measures," Tan added.

England entered a nationwide lockdown Jan. 5 to contain a new highly transmissible strain of the coronavirus that is threatening to overwhelm the country's healthcare system. According to media reports, German lawmakers have also agreed to extend that country's lockdown until the end of January, with an official announcement expected later Jan. 5.

"New and extended lockdowns may be taking their toll on broader risk appetite today and may have taken the edge off oil prices ... the lockdowns are becoming more severe, which is going to naturally take its toll on demand," said Craig Erlam, senior market analyst at OANDA, in a Jan. 5 note.

Meanwhile, analysts surveyed by Platts were bullish in their forecasts for US commercial crude stocks in data due for week the ended Jan. 1, expecting an uptick in refinery utilization to have brought inventories down by 4.4 million barrels to around 489.1 million barrels.

Weekly inventory reports by the American Petroleum Institute and the US Energy Information Administration are due for release later Jan. 5 and on Jan. 6, respectively.