Oil rises on OPEC+ meeting and Gulf tensions -Rystad Energy comments

Oil prices rose on Tuesday after Monday’s OPEC+ conservatism and helped by rising tensions in the Gulf.

Here is Rystad Energy’s daily market comment from our Head of Oil Markets Bjornar Tonhaugen:

Oil prices rose on Tuesday as, despite Monday’s negotiation deadlock, OPEC+ seems to have all options on the table, including the possibility of output cuts from February.

We don’t see the option of cutting output again as realistic at the moment as Russia’s position is favoring the exact opposite.

Tuesday’s meeting will host tough negotiations and the day is a crunch moment for the alliance, with the risk of Russia diverting from a common line, which has been in place during 2021.

The market yesterday woke up from its holiday nirvana and corrected high oil prices that the current oil demand situation does not justify. OPEC+ not agreeing to resume stable levels of production in February has also shaken traders, who expected a smoother meeting this time.

With the price correction already processed, Tuesday is now a day with a lot of upside for the oil market. Any decision by OPEC+ to not increase output in February will be seen as positive by the market.

Away from the OPEC+ poker table, the oil market found a helping hand in the Middle East, where tensions are flaring again.

Iran seizing a tanker creates, again, instability in the region and questions are raised again over the reliability of the oil transport Gulf sea roads.

If the situation doesn’t deescalate quickly, oil prices will benefit from the unpredictability.

Looking at the bigger picture and as global oil demand is bound to recover from the second quarter of 2021, there is a lot of optimism for prices going forward.

However, until we get to the point when the first supply deficits are recorded, ups and downs for the market can be expected and OPEC+ meetings, like the one happening today, are always usual candidates to cause some price turbulence.