The commodities situation before the OPEC+ meeting

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OPEC: Building Organization of the Petroleum Exporting Countries with OPEC logo.

Other lockdowns’ announcement has not supported oil’s case, with Brent dropping more than 2% yesterday. After the news, France would join a month-long lockdown due to increasing coronavirus circumstances. At the same time, Italy will continue Covid-19 restrictions until the end of April. It is developments like these that do the job of OPEC+ challenging when choosing what to do with production cuts.

The group will be assembling later today. Given the prevailing wobble in prices, along with demand worries re-emerging once again, there is a developing consensus that the OPEC+ will likely rollover recent cuts for an additional month. At most, we may witness some marginal easing like at the last meeting, where Russia and Kazakhstan were permitted to increase output by a combined 150Mbbls/d.

No instruction from OPEC+ on what they may do

The Joint Technical Committee met yesterday and reportedly did not support the entire OPEC+ group on what route they should take.

Production estimates for OPEC over March are starting to come through. As stated in a Reuters poll, OPEC production rose by 180Mbbls/d over the month to average 25.07MMbbls/d. The majority of this increase was inspired by Iran, which has been increasing exports in recent months, notwithstanding US sanctions.

Ultimately, yesterday the EIA reported that US crude oil inventories dropped by 876Mbbls over the last reporting week. While this is a slight draw, it is the first drop in US crude oil stocks since mid-February, and the US market finally seems to have shaken off the impact from the freezing weather that we noticed over late February.

Refiners improved their operating rates by 2.3 percentage points over the week, dropping the utilization rate at 83.9% over the week – the highest level seen after March last year.

Metals

Base metals principally moved marginally higher yesterday, with the US dollar rally exerting a breather. LME 3M copper ended the month at US$8,786/tonne, marking the first monthly drop after last March. Strong headwinds from a macro perspective, including the more widespread USD rally, are responsible for the lower performance. Both COMEX and LME markets have noticed a wave of long liquidations.

The new wave of coronavirus in Europe is sinking hopes for an early economic reopening and attaching uncertainty to the region’s demand recovery. The situation seems to be getting more critical.

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