Oil falls on bond market rout ahead of Opec+ meeting

London — Oil prices fell on Friday as a collapse in bond prices led to gains in the dollar while crude supply is expected to rise in response, back to prices above pre-pandemic levels.

Brent crude futures for April, which expire on Friday, fell 55c, or 0.8%, to $66.33 a barrel by 10.33am GMT. The more actively traded May contract slipped 61c to $65.50, having earlier dropped as low as $65.04.

US West Texas Intermediate (WTI) crude futures dropped 58c, or 0.9%, to $62.95 a barrel.

A sell-off in bond markets lifted the dollar, making dollar-priced oil more expensive for holders of other currencies.

Despite Friday’s price declines, both Brent and WTI are on track for monthly gains of about 20% on supply disruptions in the US and optimism over demand recovery on the back of Covid-19 vaccination programmes.

Investors are betting that next week’s meeting of oil cartel Opec and allies, including Russia (Opec+), will result in more supply returning to the market.

“The originally planned [easing of cuts] would mean an increase in supply of 2.25-million barrels per day (bpd) compared to March levels,” HSBC said in a note.

“We think market fundamentals could probably just about absorb such an amount in quarter two — if demand recovers enough — but an announcement of an immediate increase on this scale would risk spooking the market badly.”

US crude prices also face pressure from the loss of refinery demand after several Gulf Coast facilities were shuttered during the winter storm last week.

Refining capacity of about 4-million bpd is still shut and it could take until March 5 for closed capacity to resume, though there is risk of delays, analysts at JPMorgan said in a note this week.

Reuters