Oil prices are rocketing higher this morning, and the main impetus seems to be OPEC making good on their production deal. A survey of January OPEC production showed the group only raised collective output by 190 kbpd, about two-thirds of the expected gains. Although most producers did increase output per the agreement, instability in Libya contributed a small output drop. In addition, Saudi Arabia’s voluntary 1 MMbpd cuts, which last through March, go into effect today. As the rally continues, major banks predict prices could go as high as $65/bbl this year.
Commenting on recent price trends, Mansfield’s SVP of Supply Andy Milton noted: “We are actually now backwardated (crude and ULSD), so all signs point toward needing more production to meet a future demand improvement. Side note, US dollar and DOW futures are higher as well.” Backwardation means future prices are lower than current prices – a forward structure that incentivizes withdrawals from inventory and continued price strength. Milton continued, “Customers that locked in fixed price in 2020 should be loving it; customers that didn’t may be second-guessing why they didn’t. Even now, it’s a worthwhile conversation to have.”
Given the enthusiastic supply news, oil prices are setting new multi-month highs this morning. WTI crude is trading at $55.11, up $1.56 per barrel (2.9%) from Monday’s closing price.
Fuel prices are also setting new highs. Diesel prices are trading at $1.6847, up 3.8 cents (2.3%) since yesterday’s close. Gasoline is trading at $1.6302, up 4 cents (2.5%).