After months of failure by traders, oil has a hot commodity this month again, when Brent rose more than $ 65 a barrel and WTI was over $ 60 for the first time in a year. The rally cast a shadow over OPEC +’s decision to cut production as much as it does now. Oil gradually recovered even before the United States lost about 40 percent of its oil production due to the Arctic cold wave that swept across the country. The freeze in Texas certainly helped, but its effect is diminishing as traders make a profit: Brent was less than $ 63 at the time of writing and WTI was falling below $ 60 a barrel. Yet there is a significant upside potential that could increase internal tensions between OPEC + members.
First, US demand for oil is recovering. Bloomberg reports that the recovery began with the vaccination that began in December, and since then refineries have increased fuel production. The last few weeks have saw petrol supplies are rising, but so is production.
While demand in the world’s largest consumer of oil is recovering, production is declining. According to the EIA, US production will also remain below 12 million bpd next year. This imbalance will make the United States a net exporter, OIE, this year and next. said in its latest short-term energy outlook. More importantly for OPEC +, it will push oil prices even higher, attracting members who barely meet to meet even less.
There is already disagreement in the extensive oil cartel. The last time OPEC + made a decision on production, it had to make a compromise decision to take into account the interests of those – such as Russia – who insisted on repairing the deepest production cuts. And now Saudi Arabia has said it will suspend its voluntary unilateral additional cuts of 1 million bpd, and what Riyadh has done in its quest for higher prices.
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This is the clearest sign yet that OPEC’s de facto leader and largest producer is becoming more optimistic about prices. By the Wall Street Journal report which made the news public, however, the decision could still be reversed if the price situation changes. Ironically, the news that Saudi Arabia will add another million barrels daily to global supply is likely to have a negative effect on prices once the freezing frenzy in Texas erupts.
But while Saudi Arabia is still willing to do what it wants, Russia considers the oil market already rebalanced. Deputy Prime Minister Alexander Novak said as much last week as the Russian media quoted.
‘We’ve seen low volatility over the last few months. This means that the market is balanced and that the prices we see today are in line with the market situation, ‘Novak told TV channel Rossiya. 1. Novak added that the demand for oil last year was 20-25 percent lower than its normal level at this stage by the end of 2020 the decline shrank to 8-9 percent. And Russia remains one of the countries that barely complies with the OPEC + agreement. In fact, like Iraq, Russia is producing its quota.
Speaking of Iraq, the country report an increase in oil exports for the first two weeks of February despite its attempt to further reduce crude oil production to compensate for its overproduction last year. According to Bloomberg, Iraq could exceed its self-imposed limit of 3.6 million bpd for the full month and even its OPEC + cap of 3.85 million bpd.
And then there is Iran, which is already reinforcement production as it is exempt from the OPEC + cuts and has big plans for the return on the international oil stage after US sanctions were lifted. This is yet to happen after Washington called for the lifting of sanctions on Iran’s suspension of uranium enrichment activities.
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In what could be seen as a gesture of benevolence earlier this month said it recalled a statement by the Trump administration that all UN sanctions against Iran had fallen back. The statement was invalid because the terms of the 2015 nuclear deal with Iran that left the US before making the statement were used. In any case, Iran has reasons for optimism that it will soon be sanction-free and ready to pump more.
The disagreement between production-cutting falcons and production pigeons in OPEC + will only deepen with the latest oil news. As a result, Saudi Arabia’s oil minister has warned against dissatisfaction.
“I must warn against complacency again,” Prince Abdulaziz bin Salman said earlier this week quoted by Bloomberg. “The uncertainty is very great and we have to be extremely careful. The scars of the events of last year we must be careful. ”
Indeed, uncertainty remains high, and then there is the threat that U.S. producers will give up the temptation of WTI at more than $ 60. For now, they have resisted it in all fairness, and they may have shown the same warning that bin Salman spoke about this week. But at some point, the temptation may become irresistible, and what is a nightmare scenario for OPEC could happen again: US producers increase production thanks to OPEC +’s efforts to keep prices high enough to make it economical.
For now, there is no sign that OPEC + will deviate from its current policy of cutting 7.2 million bpd by April. But again as Saudi Arabia’s leading oilman said, “Those who try to predict the next move of OPEC +, for those I say, do not try to predict the unpredictable.”
By Irina Slave for Oilprice.com
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