Oil producers must review supply constraints during the Covid crisis

LONDON – A group of some of the world’s most powerful oil-producing countries will meet on Thursday to discuss the next phase of manufacturing policy amid the ongoing coronavirus crisis.

OPEC and its non-OPEC partners, an energy alliance also known as OPEC +, will meet via videoconference from 1pm London time. A press conference is planned after the meeting.

Analysts broadly expect OPEC + to reverse some of the production cuts it saw last year, although oil prices soared after speculation that the group may decide not to increase supply.

International benchmark Brent crude oil futures traded at $ 63.78 a barrel during morning deals, down nearly 0.5%, while US West Texas Intermediate (WTI) crude oil futures were $ 60.94, about 0 , 5% lower during the session

Crude futures have risen to pre-virus levels in recent weeks, pushed up by substantial OPEC + production cuts and the massive rollout of Covid-19 vaccines in many high-income countries.

The de facto leader of OPEC, Saudi Arabia, has publicly encouraged allied partners to remain “extremely cautious” with production policies and warn the group against complacency in the pursuit of a full recovery of the oil market.

Non-OPEC leader Russia, meanwhile, has indicated that it wants to continue with an increase in supply and claimed last month that the market is already in equilibrium.

Energy analysts told CNBC earlier this week that they expect OPEC + to discuss bringing back 1.3 million barrels per day in April and perhaps beyond.

Amrita Sen, chief oil analyst at Energy Aspects, told CNBC’s “Squawk Box Europe” on Thursday that the oil reserve capacity would be the group’s “biggest challenge”.

“I understand they’re not just talking about April. Saudi Arabia is basically saying to everyone, ‘Look, it’s April and May.’ Just as they did in January when they discussed February and March output, “said Sen.

Saudi Arabia understands that oil producers, such as Russia, Iran and the United Arab Emirates, are willing to pump more oil into the market, she continued. Riyadh, however, remains “laser-focused” on reducing global oil supplies to the industry average of five years and will thus ensure that the group reverses the cuts to May.

OPEC + initially agreed to cut oil production by a record 9.7 million barrels per day last year, before easing to 7.7 million and eventually 7.2 million from January.

OPEC kingpin Saudi Arabia has voluntarily made 1 million cuts since early February through March.

“Characteristic of the typical divisions within OPEC +, the meetings will be home to a passionate debate that typically reflects different views and interests. Saudi Arabia remains at the core of the market management strategy and is by far the most cautious of all member states,” said analysts. . at Eurasia Group said in a research note.

“ Complex and contradictory dynamics that have emerged in recent days will complicate decision-making, but on balance, the most likely outcome is a decrease of about 1 million bps, including a partial reversal of the previous 1 million bpd cut in Saudi Arabia . . “

Ahead of Thursday’s meeting, OPEC Secretary General Mohammed Barkindo stressed the need to remain cautious as several ministers pushed for production quotas to be relaxed.

He warned that the Covid crisis still poses downside risks to the global economy and that the distribution of vaccines, favoring the world’s richest countries, could lead to an uneven recovery.

“The speculation is that Saudi Arabia could actually surprise the market by not repaying its two-month unilateral cuts of 1 million bl / day, which it will hold from February to March 2021,” said Bjarne Schieldrop, chief commodities analyst at SEB, in a note. .

“Our expectation is that OPEC + will increase production by 1-1.5 million bl / day by April 2021. If the group increases by only 1 million bl / day, that would mean Saudi Arabia unilaterally more than its fair share. share of the burden to further support the market, ”added Schieldrop.