Saudi Energy Minister Abdulaziz bin Salman (R) is pictured with his Russian counterpart Alexander Novak as they arrive for a meeting of the Saudi-Russian Mixed Commission on December 19, 2020.
FAYEZ NURELDINE | AFP | Getty images
LONDON – A group of some of the world’s most powerful oil producers will hold a pivotal meeting Thursday to discuss whether some of the output cuts it implemented last year could be reversed.
OPEC and its non-OPEC partners, an energy alliance also referred to as OPEC +, will meet via videoconference to reach consensus on how to manage supply to the market.
The group agreed last year to limit the amount of oil it produces in an effort to keep oil prices up, as strict public health measures coincided with an unprecedented shock in fuel demand.
This week’s supply decision comes at a time when oil prices have returned to pre-virus levels, US manufacturing has been hit by freezing storms and the coronavirus pandemic continues to cloud the outlook.
The de facto leader of OPEC, Saudi Arabia, has publicly encouraged allied partners to remain “extremely cautious” with production policies and warn the group of complacency as it tries to break through the ongoing Covid-19 crisis.
Non-OPEC leader Russia has meanwhile indicated that it wants to continue with an increase in supply.
Analysts broadly expect OPEC + to increase production from current levels, but questions remain about exactly how many and which countries will be affected by this.
Last month, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman reportedly told those trying to foresee the next move of the energy alliance, “Don’t try to predict the unpredictable.”
Both Saudi and Russia ‘will get what they want’
Tamas Varga, an analyst at PVM Oil Associates, told CNBC over the phone that he believed OPEC and non-OPEC partners had “done a great job” rebalancing the market.
While global demand for oil is recovering, he warned that the recovery is still “very, very fragile”.
“What’s really important here is Russia and Saudi Arabia. The break-even price for the Russian budget is much lower than Saudi Arabia’s, so you’re going to see a kind of gap in the views between these two countries,” Varga said. .
OPEC + initially agreed to cut oil production last year by a record 9.7 million barrels per day, 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.
An oil pump, also known as a “nodding donkey,” in an oil field near Dyurtyuli, in the Republic of Bashkortostan, Russia, on Thursday, November 19, 2020.
Andrey Rudakov | Bloomberg | Getty Images
Alexander Novak, the Deputy Prime Minister of Russia, seemed to signal Moscow’s intention for an increase in supply last month, claiming that the market is already in equilibrium.
“Russia wants to return to normal production as soon as possible, while Saudi Arabia wants to enjoy high prices for a little longer and prefer to keep the market on the tight side than on the loose side. We think that both are getting what they want,” says Bjarne. . Schieldrop, chief commodity analyst at SEB, said in a research note.
Russia will likely be able to further increase production, he added, while Saudi Arabia will unilaterally return “some or possibly all” of its 1 million barrels per day.
Analysts expect OPEC + to discuss Thursday to bring back a whopping 1.3 million barrels per day.
Russia will build momentum in their market vision, but we do not see a complete switchover.
Louise Dickson
Analyst at Rystad Energy
Statements from Saudi Arabia show they are on the cautious side. Rather keep tight for a little too long than run into an oversupply before Covid-19 vaccines have really made their magic on global economic activity and demand for oil, ”said Schieldrop.
“So it is unlikely that the upcoming OPEC + meeting will ruin the oil lot with regard to April’s supply, as the overall result is likely to deficit the market a bit rather than a surplus.”
OPEC + is not yet ready to change course
International benchmark Brent crude oil futures traded at $ 63.01 a barrel on Tuesday morning, down nearly 1.1%, while US West Texas Intermediate (WTI) futures were at $ 60.02, down more than 1 %.
Oil prices, which rose to a peak of 13 months last month, appeared to extend the losses that started last week, on the expectation that OPEC + could increase global supply.
“Our expectation is that they will increase in line with their previous policy agreement announced in December 2020. And that is to not increase production by more than 500,000 barrels per day. We expect that policy to continue,” said Louise. . Dickson, an analyst at Rystad Energy, told CNBC over the phone.
The logo of the Organization of Petroleum Exporting Countries (OPEC) at the headquarters.
Omar Marques | LightRocket | Getty images
She added that OPEC could theoretically increase production by 1.3 million barrels per day, but “we don’t think they will overshoot this time.”
“Russia will build momentum in their market vision, but we don’t see a complete switchover. Last year, OPEC + was really firmly under the reins of Saudi Arabia, leading policy, making the call, taking the reins, etc. And I don’t think, after a year of such market and supply efforts, the group is ready to change course on a whim of $ 65 Brent or an ever-tightening oil market, ”she said.