Opec+ Agrees to Increase Oil Production Gradually from May.
Reprinted from the FT – 02/04/2021
Move comes despite Saudi warning recovery is ‘far from complete’ and after US lobbied for ‘affordable’ energy. Abdulaziz bin Salman, Saudi Arabia’s energy minister, said: ‘Until the evidence of the recovery is undeniable, we should maintain this cautious stance’.
The Opec+ oil alliance decided on Thursday to increase output gradually from May as pressure mounts from inside and outside the producers group to release more barrels on to the market and keep crude prices in check. The decision by the 24-member body comes despite Abdulaziz bin Salman, Saudi Arabia’s energy minister, warning Opec and allies including Russia earlier in the day that crude’s recovery was “far from complete” with the pandemic still wreaking havoc globally.
“Until the evidence of the recovery is undeniable, we should maintain this cautious stance,” Prince Abdulaziz, son of the Saudi king, told reporters and ministers ahead of the formal virtual gathering of oil officials. Still, Alexander Novak, Russia’s deputy prime minister, said the market had improved substantially as vaccines to combat the virus were rolled out and Opec+ had to ensure the market did not “overheat”. Consumer countries are also watching the actions of Opec+ carefully, with those such as India wary about producers keeping too tight a hold on output that will only propel a surge in prices. Jennifer Granholm, US energy secretary, added another layer of uncertainty into the group’s decision-making. She had a call with Prince Abdulaziz on Wednesday and emphasised the importance of “affordable” energy.
Coronavirus economic impact Pandemic crisis: Global economic impact tracker Some analysts took comments by her on Twitter to be a plea for the kingdom to keep a lid on crude oil prices that in turn influence US gasoline prices. A sharp fall in US production last year reminded American operators of Opec’s sway over the oil market and prompted demands from former president Donald Trump for Saudi Arabia to slash supply to prop up prices.
Producers will collectively increase output by 350,000 barrels a day in May, another 350,000 b/d in June and around 441,000 b/d for July, one Opec delegate said. Some analysts had expected countries to hold fire on additional increases. Prince Abdulaziz told reporters the decision, in contrast to the tone of his earlier comments, was not based on any pressure from the new Biden administration. “I can give you full assurance that oil market, oil prices . . . anything related to Opec, Opec+ . . . was not even mentioned [on the Granholm call],” he added.
He said the small increases were a “conservative measure” and “the cautiousness is still there”. Opec and allies outside the cartel, led by Russia, agreed in April 2020 to cut a record 9.7m barrels a day. The Opec+ group had gradually unwound these curbs to about 7m b/d, with producers meeting monthly to decide how much oil to unleash on the market. In December Opec+ agreed that it would increase output by up to 500,000 b/d each month, but after raising production in January it held back from further increases as uncertainty loomed about consumption.
The kingdom also implemented a voluntary cut of its own of about 1m b/d to bolster the market. In the coming months, Saudi Arabia will increase production by 250,000 in May, 350,000 in June and 400,000 in July. Optimism about the impact of vaccines on global economies helped crude prices recover towards $70 a barrel. The price of Brent crude has since retreated to about $64 a barrel as European governments impose new restrictions and lockdowns to curb the virus’s spread while new variants are creating fresh uncertainties. “The agreement is supportive of oil prices yet should also help avoid a sharp spike upward as oil demand picks up,” said Ann-Louise Hittle at consultancy Wood Mackenzie.