Crude oil futures rise as OPEC+ rolls over production cuts, stronger US dollar slows rally

Singapore — 0314 GMT: Crude oil futures rose during mid-morning trade in Asia March 5, even as a stronger US dollar slowed the rally triggered by the OPEC+ decision to keep production quotas largely steady in April.

At 11:14 am Singapore time (0314 GMT), the ICE Brent May contract was up by 68 cents/b (1.01%) from the March 4 settle to $67.42/b, while the April NYMEX light sweet crude contract was up by 60 cents/b (0.94%) to $64.43/b.

The overwhelmingly bullish sentiment in the oil market was held back slightly by the rapid appreciation in the US dollar, which made crude more expensive for buyers holding other currencies. At 11.00 am in Singapore, the March ICE US dollar index futures were trading at 91.670, up 0.801% from the March 4 settle.

"The markets are on a bit of a fence this morning despite the bullish OPEC+ decision, as rising treasury yields and safe haven demand has pushed the US dollar up, and a risk-off sentiment has gripped the markets," Pan Jingyi, senior market strategist at IG, told S&P Global Platts March 5.

The appreciation in the dollar has provided some resistance to the surge in oil prices after the OPEC+ alliance decided to keep production quotas largely steady for the month of April, with Saudi Arabia extending its unilateral 1 million b/d output cut indefinitely. Only Russia and Kazakhstan were granted 130,000 b/d and 20,000 b/d increases in their production quota, respectively.

The coalition's decision means that it will keep 8 million b/d of crude production -- or roughly 8% of pre-pandemic supply -- off the market for at least another month. The oil market reacted by sending the Brent and NYMEX light sweet crude markers hurtling 4.17% and 4.16% higher to settle at $66.74/b and $63.83/b, respectively, on March 4.

Delegates to the OPEC+ meeting said the decision was prompted by lingering uncertainty over the economic recovery, which could still be derailed by uneven vaccine rollouts and stringent lockdown measures.

"I belong to the school of being conservative," Saudi Arabia's energy minister Prince Abdulaziz bin Salman said after the meeting, having earlier told OPEC+ that "the right course of action now is to keep our powder dry, and to have contingencies in reserve to insure against any unforeseen outcomes."

The OPEC+ decision came as a surprise to the market, which had braced itself for the possibility of a significant increase in the coalition's supply from April onwards, and had at the very least expected Saudi Arabia to end its 1 million b/d production cut.

"Expectations were high for the Saudis to end their voluntary 1 million b/d cut and for the group to collectively raise output by 500,000 barrels," Edward Moya, senior market analyst at OANDA, said in a March 5 note.

"Oil prices could rip higher now that a tight market is likely up through the summer. WTI Crude at $75/b no longer seem outlandish and Brent could easily top $80/b by the summer," Moya added.