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Feb. 26, 2021, 3:19 p.m. EST

Oil futures settle lower, but U.S. benchmark logs a monthly gain of nearly 18%

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By Myra P. Saefong and William Watts

Oil futures settled sharply lower Friday, with a rise by the U.S. dollar and jitters ahead of next week’s meeting of the Organization of the Petroleum Exporting Countries and its allies prompting the U.S. crude benchmark to pull back from a 22-month high.

The U.S. contract, however, still gained nearly 18% for the month, to tally a fourth-consecutive monthly climb.

OPEC+ ministers are scheduled to meet on March 3 and March 4 to discuss production curbs. Compliance with the group’s existing limits on output, along with Saudi Arabia’s unilateral decision to cut production by 1 million barrels a day in February and March, have been seen as a significant contributor to the 2021 oil rally.

Read: Here’s what the oil market thinks OPEC+ should do next

As Marshall Gittler, head of investment research at BDSwiss Group, sees it, the group must make two decisions.

They have to decide whether to go ahead with restoring as much as 500,000 barrels a day of production in April, as scheduled under the agreement reached in December, he said in a Friday note. The elephant in the room is the second decision, on what Saudi Arabia will do with regard to its unilateral output cut of 1 million barrels per day in February and March.

“That’s helped tremendously to square the circle: to allow other members to increase their production while continuing to run down the global oil inventory overhang,” said Gittler. “Many people in the market assume that with prices where they are now, both restraints will be lifted,” essentially leading to a 1.5 million barrel per day production increase.

Read: Baker Hughes data show weekly climb in U.S. oil-drilling rigs

Indeed, the rise in oil prices may stir calls to loosen the curbs, driven in part by fears U.S. shale producers and others will increase output in response to stronger prices and take market share from OPEC+ members.

“Personally, I think that OPEC+ will manage the situation, most likely by adding 125,000 barrels a day a month over the next four months for a total of 500,000 barrels. That would get OPEC+ to summer driving season with demand supersized on vaccine/stimulus…hopefully,” said Robert Yawger, director of energy futures at Mizuho Securities USA, in a note.

On Friday, West Texas Intermediate crude for April delivery /zigman2/quotes/211629951/delayed CL.1 -0.44% fell $2.03, or 3.2%, to settle at $61.50 a barrel on the New York Mercantile Exchange, after posting its highest front-month close since May 1, 2019 on Thursday. Prices ended nearly 18% higher for the month, according to Dow Jones Market Data.

The front-month global benchmark April Brent crude contract expired at the end of the trading session. The contract settled at $66.13, down 75 cents, or 1.1%, on ICE Futures Europe, for a monthly gain of more than 18%. May Brent crude , which is now the front month, lost $1.69, or 2.6%, at $64.42 a barrel.

Crude-oil futures had climbed “in anticipation of improvements in demand, while global supplies remained constricted,” said Marshall Steeves, energy markets analyst at IHS Markit. However, U.S. supplies have quickly recovered from disruptions last week from winter storms, and “will likely not have quite such a significant impact on next week’s inventory data,” he said.

Meanwhile, a jump in U.S. Treasury yields on Thursday triggered global equity market jitters, while also lifting the U.S. dollar. A stronger dollar can be a negative for commodities, making them more expensive to users of other currencies.

The “domino effect is starting to hit commodities like oil, triggered by a correction in the reflation trade due to higher U.S. yields that are becoming a significant source of market volatility,” said Stephen Innes, chief global markets strategist at Axi, in a note.

The ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY +0.13% , a measure of the U.S. currency against a basket of six major rivals, was up 0.8% in Friday dealings.

Petroleum-product prices also declined on the expiration day for the March contracts. March gasoline fell 0.8% to $1.877 a gallon, ending more than 19% higher for the month, and March heating oil fell 2.6% to $1.8565 a gallon, for a monthly rise of 16%.

April natural gas settled at $2.771 per million British thermal units, down 0.2% for the session, with prices up just over 8% for the month.

Read: Why natural-gas prices underperformed oil prices in February by a long shot

Lost output from the winter storms in mid-February has largely “been recovered and probably will not have significant impact on next week’s storage report,” said Steeves.

US : U.S.: Nymex
$ 59.34
-0.26 -0.44%
Volume: 315,007
April 9, 2021 4:59p
US : U.S.: ICE Futures U.S.
+0.12 +0.13%
Volume: 0.00
April 9, 2021 4:59p

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