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 Joint Committee on December 19, 2020.
FAYEZ NURELDINE | AFP | Getty Images
LONDON – A group of the most powerful oil producers in the world will hold an important meeting on Thursday to discuss reversing the production cuts made last year.
OPEC and its non-OPEC partners, an energy alliance sometimes referred to as OPEC +, will be convened via video conference to reach a 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 raise oil prices, as strict public health measures have coincided with an unprecedented fuel demand shock.
This week’s supply decision comes at a time when oil prices have returned to the level of viruses, US production has been hit by freezing storms and the coronavirus pandemic is still blurring the outlook.
OPEC’s de facto leader, Saudi Arabia, has publicly urged allies to remain ‘extremely cautious’ with production policies, warning the group against dissatisfaction as they try to navigate the ongoing Covid-19 crisis.
Non-OPEC leader Russia, meanwhile, has indicated it wants to continue with an increase in supply.
Analysts generally expect OPEC + to increase production from current levels, but there are still questions about exactly and which countries will be affected.
According to Saudi Energy Minister Abdulaziz bin Salman last month, the Saudi energy minister said he would like to provide the next step to the energy alliance: “Do not try to predict the unpredictable.”
Both Saudi Arabia and Russia ‘will get what they want’
Tamas Varga, analyst at PVM Oil Associates, told CNBC by telephone that he believes OPEC and non-OPEC partners have done a “wonderful job” of balancing the market.
However, while global demand for oil is recovering, he warns that the recovery is still ‘very, very fragile’.
“What really matters here is Russia and Saudi Arabia. The breakthrough price for Russia’s budget is much lower than that of Saudi Arabia, so you will see a kind of gap in the views between these two countries,” Varga said. .
OPEC + initially agreed to reduce oil production by a record 9.7 million barrels per day last year, before declining from January to 7.7 million and eventually 7.2 million. OPEC Queen Saudi Arabia has embarked on voluntary cuts of 1 million since the beginning of February to March.
An oil pump, also known as a ‘nodding donkey’, in an oil field near Dyurtyuli, in the Republic of Bashkortostan, Russia, on Thursday 19 November 2020.
Andrey Rudakov | Bloomberg | Getty Images
Alexander Novak, Russia’s deputy prime minister, appears to be signaling Moscow’s intent last month, claiming the market is already balanced.
“Russia wants to return to normal production as soon as possible, while Saudi Arabia wants to enjoy higher prices for a while and rather keep the market on the strict side than the loose side. We think both will get what they want,” he said. said Bjarne. Schieldrop, chief commodity analyst at BEE, said in a research note.
Russia is likely to be allowed to further increase production, he added, while Saudi Arabia will return some or potentially all of its 1 million barrels a day unilateral cuts.
Analysts expect OPEC + to re-enter as many as 1.3 million barrels a day on Thursday.
Russia will build momentum in their market outlook, but we do not see a complete conversion.
Louise Dickson
Analyst at Rystad Energy
“Statements from Saudi Arabia indicate that they are on the cautious side. To keep it a bit tight rather than have an oversupply before Covid-19 vaccines really do their magic on global economic activity and the demand for made oil. ” Schieldrop said.
“The forthcoming OPEC + meeting is therefore unlikely to destroy the oil party in terms of supply in April, as the overall outcome is likely to leave the market slightly short rather than in surplus.”
OPEC + not yet ready to switch course
International standard Brent crude futures traded at $ 63.01 a barrel on Tuesday morning, almost 1.1% lower, while the US West Texas Intermediate (WTI) crude futures stood at $ 60.02, with more than 1%.
Oil prices, which rose to a 13-month high last month, apparently extended losses that began last week due to the expectation that OPEC + would potentially increase global supply.
“Our expectation is that they will increase in line with their previous policy transaction announced in December 2020. And that is to not increase more than 500,000 barrels per day. We expect the policy to remain valid,” Louise said. said. Dickson, an analyst at Rystad Energy, told CNBC by telephone.
The logo of the Organization of the Petroleum Exporting Countries (OPEC) at headquarters.
Omar Marques | LightRocket | Getty Images
She added that OPEC could in theory increase production by 1.3 million barrels a day, but “we do not think they will surpass this time.”
“Russia will build momentum in its market view, but we do not see a complete transition. For the last year, OPEC + has been really firmly under the reins of Saudi Arabia, which has led the policy, made the calls, called the shots. “And I do not think that the group, after a year of such market and supply, is ready to change course at just $ 65 Brent or an increasingly tight oil market.” she said.