OPEC+ freezes crude output growth until May
OPEC+ decided to hold oil production steady at last until the end of April in contrast to market expectations. According to analysts, the move is risky, as fuel consumption recovers in many countries. Nonetheless, the alliance doesn’t want to raise output until there are concrete signs of a sustainable recovery in demand.
Saudi Arabia and its OPEC+ allies shocked the oil market with a decision to keep supply in check, reports Bloomberg. Thus, the kingdom showed that its priority is preserving the hard-won oil recovery rather than worrying about tightening the market too much. “I don’t think it will overheat,” said Saudi Minister of Energy Prince Abdulaziz bin Salman after the group’s meeting on 4 March adding that “it’s about being vigilant and being careful”.
The Organization of Petroleum Exporting Countries and its allies were expected to restore part of earlier restricted production in April to temper a rapid run-up in prices. However, the alliance agreed to hold steady at current levels. Russia and Kazakhstan were granted modest increases, while Saudi Arabia announced that its additional 1-million-bpd voluntary production cut would now be open-ended. Overall, the cartel will withdraw some 7 million bpd from the market, which is equivalent to about 7% of global demand.
The alliance has kept production below demand throughout the first quarter to reduce the glut accumulated during 2020 due to COVID-19 lockdowns. As a result, Brent crude has rallied about 30% this year to almost $68 per barrel. “We expect oil prices to rise toward $70 to $75 a barrel during April,” said Vice-President of Macro Oils at Wood Mackenzie Ann-Louise Hittle. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production,” she added.
Russian Deputy Prime Minister Alexander Novak also sees risks to the global market. “We should closely monitor to avoid overheating of the market,” he said in an interview just after the meeting. Russia and Kazakhstan secured exemptions from the deal because of “continued seasonal consumption patterns”. The two countries were allowed to boost production in April by 130,000 and 20,000 bpd respectively following similar allowances in February and March.
Financial markets are anticipating an acceleration in price growth due to strengthening economies, the roll-out of coronavirus vaccines and continued government stimulus, although these factors are countered by weak labour markets. OPEC+ will meet again on 1 April to define its strategy for May.