What’s Affecting Oil Prices This Week? (Jan. 11, 2021)

[Editor’s note: This report is an excerpt from the Stratas Advisors weekly Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.]

Last week’s political events in the U.S. were certainly chaotic, starting with the formal Congressional objections to the electoral votes to the additional developments that unfolded later that day. While startling, both financial and oil markets were essentially oblivious to the events. The Dow Jones and other financial indexes moved upwards during the chaos, and oil prices maintained momentum, remaining above $50/bbl.

However, there was an additional event on the other side of the world related to oil markets, and will have significant impact on the management of the oil fundamentals and price stability: the OPEC+ meeting and Saudi Arabia’s unilateral decision to cut 1 million bbl/d for February and March supply.

Both topics, the U.S. political arena and the management of the oil markets, are poised for interaction, and the resulting dynamics could trigger market volatility that will surpass even that seen last year. The unilateral cut in production taken by Saudi Arabia has the potential to undermine the OPEC+ framework. Additionally, the oil market will be affected by the transition from the Trump administration to the Biden administration and additional geopolitical issues.

About the Author:

Jaime Brito is vice president at Stratas Advisors with over 24 years of experience on refining economics and market strategies for the oil industry. He is responsible for managing the refining and crude-related services, as well as completing consulting.