Rystad Energy’s daily market comment from our Senior Oil Markets Analyst Louise Dickson:

The oil market is expected to see bullish momentum this week, at least until OPEC+ meets, as traders expect no change of supply policy by the group, despite the extreme market tightness.

Oil prices are already rising today, despite the OPEC+ meeting being scheduled for Thursday, ignoring bearish developments such as China deciding to release oil products from state reserves and a general worsening of Covid-19 cases in Eastern Europe.

We expect oil prices to brush off these bearish sentiments and remain robust as the OPEC+ meeting approaches, with the only curve ball potentially coming from a repeat of last week’s bearish US crude builds.

For now, the only word traders seem to worry about this week is ‘supply’ and as long as it is married with tightness, there is no mood to reduce price risk.

The market expects OPEC+ to keep its supply policy unchanged and oil prices to therefore stay buoyant when it meets this Thursday, a development that will maintain supply tightness and the bullish price sentiment.

Calls from refiners and from the US President himself to alleviate the tight oil supply environment are not expected to be answered by OPEC+ producers, as both heavyweight policy drivers Saudi Arabia and Russia have been vocal about wanting to wait out the short-term market tightness.

Instead of pumping more supply, OPEC+ will likely stay behind the demand curve, rather than risk jumping ahead and getting burned.

Overall, we see a steady climb in supply returning in 2022 as the demand bounce-back, higher oil prices, and expanded upstream drilling activity overall trigger more supply and offset the worries about resurging Covid-19 cases, supply disruptions, and labor shortages.

We see US oil and lease condensate exiting 2021 at 11.7 million bpd, and Russia production ticking up to above 11 million bpd, but for Saudi Arabia to keep some slack in their supply and only finish the year at about 10.3 million bpd.

Prices can easily move even higher in over a brief period during winter, unless OPEC+ surprises with more supply. However, total liquids balances and implied products balances for 2022 are still bearish, with build expected, weighing on the outlook for oil prices.