WTI pulls back from fresh cycle highs in the $63.70s

• WTI is off fresh cycle highs in the upper $63.00s but remained supported above $63.00.
• Profit-taking, equity market downside and focus on the incoming OPEC+ production increase are all weighing.

Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary (or WTI), bounced off the $63.00 level in recent trade but remain below session (and cycle) highs in the $63.70s set earlier during the European trading session. At present, WTI trades very modest in the green at around $63.25.

Driving the day

Market commentators attributed to the pullback from highs to profit-taking. Focus is increasingly turning to OPEC+ and what the cartel will do next week and most expect the group of oil-producing nations to increase supply, and this could be encouraging speculators holding profitable long positions to book some profits.

Note that downside in US stock markets, which are being driven by selling in growth, momentum and high price-to-earnings ratio stocks as longer-term bond yields continue their ascent, might also be weighing on crude oil markets somewhat.

Returning to the topic of OPEC, sources have been speaking to the press; according to one source, prices are “definitely high” and more oil is needed in order to “cool” the market, before adding that a 500K barrel per day hike in the cartel’s output looks likely. However, another source said that the group should hold output steady until June given risks regarding new Covid-19 variants and “setbacks” in the fight versus the virus.

OPEC+ decision will in large part depend on how much supply the Saudi Arabian’s plan to bring back online in April out of the 1M barrel per day involuntary cuts they made in February and March; if they want to bring the whole 1M back online, this will make it more difficult for OPEC+ members to increase their production quotas without triggering an adverse market reaction.

Note also that a number of desks now expect crude oil inventories in the US to build in the coming weeks, given the faster recovery in US crude oil production versus refinery activity in wake of last week’s weather-related disruptions to US oil and fuel production. Given that these build will have been driven by temporary weather effects, markets should be able to shrug them off, confident that inventories will start to drop again in the coming weeks.