Oil surged to the highest in nearly two years after
the OPEC+ alliance surprised traders with its decision to keep output
unchanged, signaling a tighter crude market in the months ahead.
Futures in New York climbed 4.2%, rising the most since Saudi Arabia
last shocked markets with its January pledge to unilaterally cut output. Global
benchmark Brent also jumped on Thursday. The OPEC+ producer alliance agreed
during a virtual gathering to hold output steady in April. Saudi Arabia said it
is in no hurry to bring back supply and will maintain its 1 million
barrel-a-day voluntary production cut.
OPEC+ has helped drain a
global glut that accumulated during the pandemic through its supply management,
pushing crude futures up more than 30% so far this year. The strength is
evident across many corners of the oil market, with key timespreads widening
further in a bullish backwardation structure -- an indication of tightening
supplies -- and data from brokers showing rallies in key swap markets in the
Meanwhile, Brent options volume rose to the highest since March 2020,
according to preliminary trade data compiled by Bloomberg.
The OPEC+ decision represents a victory for Saudi Arabia, which has
advocated for production restraints to keep crude prices supported. However,
higher prices could spur additional drilling activity by U.S. shale explorers,
with domestic oil rigs already at the highest since May 2020. Saudi Arabia
appeared unfazed by that risk: Saudi Energy Minister Prince Abdulaziz bin
Salman told reporters after the meeting that the U.S. mantra of “drill, baby,
drill is gone forever.”
OPEC+ had been debating
whether to restore as much as 1.5 million barrels a day of output. As part of
the agreement, Russia and Kazakhstan were granted exemptions. The group’s next
meeting is scheduled for April 1 to discuss production levels for May.