After months of neglect by traders, oil has become a hot goods again this month, when Brent rose more than $ 65 a barrel and the WTI exceeded $ 60 for the first time in a year. The rally cast a shadow over OPEC + ‘s determination to continue to reduce production as much as it does now. Oil had steadily recovered just before the United States lost about 40 percent of its oil production to the Arctic cold snap across the country. The deep freeze in Texas certainly helped, but its effect is already waning as traders make a profit: Brent was down to less than $ 63 at the time of writing, and WTI had dropped below $ 60 a barrel. However, there remains substantial growth potential that could increase internal tensions between OPEC + members.
First, US oil demand is recovering. The recovery, Bloomberg reports, began with the vaccination action that began in December, and since then, refineries have accelerated fuel production. The last two weeks they had seen gasoline stocks increase, but so does production.
As demand from the world’s top oil consumer returns, production stops. According to the EIA, US production will remain below 12 million bpd next year. This imbalance will turn the United States into a net exporter this year and next, the EIA SAPS in its latest short-term energy perspective. But more importantly, for OPEC +, this would lead to higher oil prices, which would tempt the barely compliant members to become even less compliant.
There is already discord in the extended oil cartel. The last time OPEC + took a decision on production, it had to take a compromise decision to take into account the interests of those – such as Russia – who insisted on a refund of the deepest production cuts. And now, Saudi Arabia has said it will suspend its additional voluntary unilateral rebates amounting to 1 million bpd and that Riyadh has conducted any higher price search.
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This is the clearest signal so far that the de facto leader of OPEC and the largest producer is becoming increasingly optimistic about prices. According to the Wall Street Journal report who gave the news, however, the decision can be annulled if the price situation changes. Ironically, the very news that Saudi Arabia will add another million barrels a day to global supply is likely to have a negative effect on prices with the Texas frost frenzy.
But while Saudi Arabia continues to be prepared to do whatever it takes, Russia sees the oil market as already rebalanced. Deputy Prime Minister Alexander Novak SAPS as much as quoted by the Russian press last week.
“We have seen low volatility in recent months. This means that the market is balanced and the prices we see today are in line with the market situation, “Novak told Rossiya 1. Novak added that while last spring, oil demand was 20- 25 percent lower than its normal level at this time of year, by the end of 2020, the decline has narrowed to 8-9%, and Russia remains one of the nations that is barely compliant with the OPEC + agreement. , Russia produced over its share.
Speaking of Iraq, the country reported an increase in oil exports in the first two weeks of February, despite its attempt to further reduce crude oil production to offset its overproduction last year. For the whole month, according to Bloomberg, Iraq can exceed the self-imposed ceiling of 3.6 million bpd and even the OPEC + ceiling of 3.85 million bpd.
And then there’s Iran, which it already is increase production, because it is exempt from OPEC + reductions and has big plans for its return to the international oil scene after the lifting of US sanctions. This has not yet happened, after Washington linked the elimination of sanctions on Iran’s suspension of uranium enrichment activities.
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In what could be seen as a gesture of goodwill, the US earlier this month SAPS annulled a statement by the Trump administration that all UN sanctions against Iran have been lifted. The statement was void because it used provisions from the 2015 nuclear deal with Iran that the US left before making the statement. In any case, Iran has reason to be optimistic that it will soon be without sanctions and ready to pump more.
The discord between slaughtered production falcons and production growth pigeons under OPEC + will only deepen with the latest alcoholic news about oil. It has already prompted the Saudi oil minister to warn against satisfaction.
“I must warn once again against complacency,” Prince Abdulaziz bin Salman said earlier this week. quote of Bloomberg. “The uncertainty is very high and we have to be extremely careful. The scars of last year’s events should teach us caution. ”
Uncertainty remains high, and then there is the threat of US producers giving in to the temptation of more than $ 60 WTI. For now, they have rightly resisted, perhaps showing the same caution that Salman talked about this week. But at some point, the temptation may become irresistible and what for OPEC is a nightmare scenario may happen again: US producers are accelerating production due 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 remaining with 7.2 million bpd reductions until April. But again, as Saudi Arabia’s main oil company SAPS“Those who try to predict the next move of OPEC +, compared to those I tell, are not trying to predict the unpredictable.”
By Irina Slav for Oilprice.com
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