Oil futures edged higher Friday, finding support as traders appeared confident efforts to rein in supply would offset pressure on demand from the continued spread of COVID-19 and slower-than-expected vaccine rollouts.
West Texas Intermediate crude for March delivery rose 28 cents, or 0.5%, to $52.62 a barrel on the New York Mercantile Exchange. March Brent crude rose 54 cents, or 1%, to $56.07 a barrel on ICE Futures Europe. April Brent, the most actively traded contract, rose 39 cents, or 0.7%, to $55.49 a barrel.
“Restrictions on the demand side because of the lockdowns are countered by a sufficient reduction in supply on the other,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note. “This is preventing prices from falling or rising to any significant extent. The expectation of a marked recovery in demand during the course of the year should be priced in by now.”
Saudi Arabia is due to implement a unilateral production cut of 1 million barrels a day next month.
But investors may be overly optimistic about the ability of Saudi Arabia and major producers to keep a lid on output if the pandemic continues to weigh on demand for longer than expected by the market or if high prices bolster shale production in the U.S., said Edoardo Campanella, economist at UniCredit.
“In such a scenario, Riyadh is unlikely to intervene unilaterally once more and play the role of swing producer,” he said.
“It will expect the rest of the [OPEC+} alliance to share the burden of the adjustment. But calling for a coordinated response will be challenging as OPEC+ member have different price targets, economic priorities and political goals,” he said.