The Organization of Petroleum Exporting Countries and key partners will expand most of the current production cuts and raise oil prices on Thursday.
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Most OPEC + members will continue current production quotas in April, including Saudi Arabia’s earlier decision to limit 1 million barrels per day from its own production. Russia and Kazakhstan have exceptions and could increase production by 130,000 bpd and 20,000 bpd respectively “due to continued seasonal consumption patterns.”
“The decision by Saudi Arabia to extend their voluntary cut of 1 million bpd was shocking because it makes them vulnerable to losing market share next month when a few million barrels are in short supply in the oil market,” writes Edward Moya, a market analyst at Oanda. n Note. “This result is not expected and guarantees a tight market during the summer.”
Market analysts originally expected the group to approve a 1.5 million bpd increase in production, with Saudi Arabia ending its extra reduction of 1 million bpd.
But Saudi Arabia could start bringing production back gradually in May. OPEC + meets again on 1 April.
Oil prices soared. Brent futures rose 4.5% to $ 66.96 a barrel. US crude oil prices rose 4.6% to $ 64.10.
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Oil prices increase energy supplies
Exxon Mobile (XOM)’s shares rose 2.7% on the stock market today to 58.07, up earlier in the day. Chevron (CVX) increased by 0.9% to 104.48. EOG Resources (EOG) increased by 5%.
Saudi Arabia has requested OPEC + not to preside over the last few meetings, even though there is good news on the pandemic front.
Energy Minister Prince Abdulaziz bin Salman said: “There is no doubt that the global oil market has improved since we last met in January,” in his remarks at the opening of the OPEC meeting. The group has been called OPEC + in recent years, with the addition of Russia and top producers.
But he also warned that the group was showing “caution and vigilance”.
At the OPEC + meeting in December, Prince Abdulaziz said that Covid’s vaccines add hope but also uncertainty to the oil markets, as “it is a bit unknown” how many people will take the vaccine.
An increase in demand and oil prices depends on Covid-19 vaccine rates. Vaccines are rolling out on a faster cut and the US has the Johnson & Johnson (JNJ) shot over the weekend. But the majority of adults in the US will only be vaccinated in the spring. Meanwhile, the EU will not reach 70% vaccination levels until midsummer.
Even with strong leading indicators such as vaccination of vaccines, Prince Abdulaziz wants to see world supplies shrink to the levels seen in 2015-2019.
With the expansion of production savings and the focus on inventory, energy consultant Wood Mackenzie sees that Brent’s oil prices will reach $ 70- $ 75 a barrel in April.
“The risk is that these higher prices will dampen the provisional global recovery,” Ann-Louise Hittle, a VP at the consultant, said in a release. “But the Saudi energy minister is determined that OPEC + must pay attention to concrete signs of a rise in demand before proceeding with production.”
OPEC + Impact on US shale
OPEC + members have a delicate balance sheet to support oil prices enough to fund government coffers, while not seeing oil prices rise enough to bring about a large increase in US shale production.
But the group seems to be thinking that the growth of the American shale is running out.
“Drill, baby, drill, is gone forever,” Prince Abdulaziz said during the press conference after the meeting, targeting American shale producers. “I think all producers have learned the difficult lesson, how to discipline themselves so that they can ensure that the well-being of the company and the well-being of the shareholders is maintained,” he said.
But U.S. producers have previously found new ways to squeeze profits out of shale rock.
Devon Energy (DVN) has drawn up a $ 1.8 billion capital expenditure budget this year, close to the spending levels of 2019. Last month, Continental resources (CLR) has drawn up a budget of $ 1.4 billion. This is higher than its preliminary budget of $ 1.2 billion to $ 1.3 billion in November.
EOG Resources said its dividend and capital expenditure plan could be funded by free cash flow, even if WTI oil falls below $ 40 a barrel.
“We continue to move forward in our exploration efforts and allocate more capital in 2021 to test oil effects and rental areas with a major impact,” CEO Bill Thomas said in the fourth quarter. “While much of the industry is declining or exploring, we are confident that our pipeline of new plays can significantly increase the long-term value of EOG, and we are aggressively pursuing it.”
Follow Gillian Rich Twitter for energy news and more.
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