MercoPress. South Atlantic News Agency

Oil heading for US$ 70 a barrel on OPEC+ latest decision to retain output cuts

OPEC and its allies including Russia had been debating whether to restore as much as 1.5 million barrels a day of output

Oil is heading toward US$ 70 a barrel after OPEC+ chose not to relax supply curbs even as the global economy pulls out of its pandemic-driven slump, confounding widespread expectations the group would loosen the taps.

The surprise decision spurred a wave of crude price forecast upgrades by major banks. The producer alliance agreed to hold output steady in April, while Saudi Arabia said that it will maintain its 1 million barrel-a-day voluntary production cut.

The Organization of Petroleum Exporting Countries and its allies including Russia had been debating whether to restore as much as 1.5 million barrels a day of output. As part of the agreement, which was struck at a virtual meeting on Thursday, Russia and Kazakhstan were granted exemptions. The group’s next meeting is set for April 1 to discuss production levels for May.

Oil’s rapid gains stand to intensify the global debate about the potential resurgence in inflation, and complicate the task facing the Federal Reserve as it seeks to sustain the U.S. recovery. The Treasury market is already on edge for signs of faster price gains, with benchmark yields rising rapidly.

Goldman Sachs Group Inc. raised its Brent forecasts by US$ 5 a barrel and now see the global crude benchmark at US$ 80 in the third quarter. JPMorgan Chase & Co. increased its Brent projection by US$ 2 to US$ 3 a barrel and Australia & New Zealand Banking Group Ltd. boosted its three-month target to US$ 70. Citigroup Inc. said crude prices could top US$ 70 before the end of this month.

Oil rising to these levels will likely increase strains within OPEC+ as some members will want to pump more to relieve under-pressure economies, Citi said in a note. Top importers such as China and India would also not be happy and the alliance is likely to change course at its next meeting, it said.

In addition to the fallout from the OPEC+ shock, investors will also look to commentary on Friday from China’s National People’s Congress, the nation’s biggest political meeting of the year. The gathering carries added significance this year with the Communist Party’s unveiling of its new five-year plan.