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 19 December 2020.
FAYEZ NURELDINE | AFP | Getty Images
LONDON – A group of some of the world’s most powerful oil producers will hold a crucial meeting on Thursday to discuss reversing last year’s production cuts.
OPEC and its non-OPEC partners, an energy alliance sometimes called OPEC +, will meet by video conference in an attempt to reach a consensus on how to manage market supply.
Last year, the group agreed to restrict the amount of oil it produces in an effort to boost oil prices, as strict public health measures coincided with an unprecedented shock to fuel demand.
This week’s supply decision comes at a time when oil prices have returned to pre-virus levels, US production has been hit by frozen storms and the coronavirus pandemic continues to cloud the outlook.
OPEC’s de facto leader, Saudi Arabia, has publicly encouraged Allied partners to remain “extremely cautious” about production policy, warning the group against complacency as it tries to navigate the Covid-19 crisis.
Meanwhile, Russia, which is not the leader of OPEC, has indicated that it wants to move forward with an increase in supply.
Analysts generally expect OPEC + to increase production to current levels, but questions remain about how exactly and which countries will be affected.
At an event last month, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, reportedly told those trying to predict the energy alliance’s next move: “Don’t try to predict the unpredictable.”
Both Arabia and Russia “get what they want”
Tamas Varga, an analyst at PVM Oil Associates, told CNBC over the phone that he believes OPEC and non-OPEC partners have done an “amazing job” in rebalancing the market.
However, as global oil demand recovers, he warned that the recovery is still “very, very fragile”.
“What really matters here is Russia and Saudi Arabia. The equal price of 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 cut oil production by a record 9.7 million barrels per day last year, before cutting the cuts to 7.7 million and finally 7.2 million in January . The head of OPEC Saudi Arabia has since taken voluntary cuts of 1 million from early February to March.
An oil pumping jack, also known as a “donkey in the head”, in an oil field near Dyurtyuli, in the Republic of Bashkortostan, Russia, on Thursday, November 19, 2020.
Andrey Rudakov | Bloomberg | Getty Images
Alexander Novak, Russia’s deputy prime minister, appeared to signal Moscow’s intention to increase supply last month, saying the market was already balanced.
“Russia wants to return to normal production as soon as possible, while Saudi Arabia wants to enjoy high prices for a little longer and keep the market on the tight side rather than the free one. We believe both will get what they want. Bjarne Schieldrop, chief analyst of goods at SEB, said in a research note.
Russia is likely to receive further production growth, he added, while Saudi Arabia will return “some or potential all” of the 1 million barrels a day cut unilaterally.
Analysts expect OPEC + to discuss allowing 1.3 million barrels a day back on Thursday.
Russia will increase its momentum in their vision of the market, but we do not see a complete transition.
Louise Dickson
Rystad Energy analyst
“The statements in Saudi Arabia indicate that they are on the prudent side. Rather, keep it a little too tight rather than run into an oversupply before Covid-19 vaccines do the magic on global economic activity and demand. of oil “. Schieldrop said.
“The next OPEC + meeting is therefore unlikely to destroy the oil party in terms of April supply, as the overall result will leave the market slightly short, rather than in surplus.”
OPEC + is not yet ready to change course
On the big morning, international futures contracts for Brent crude traded at $ 63.01 a barrel, down nearly 1.1%, while US futures contracts West Texas Intermediate (WTI) traded lower. located at $ 60.02, down more than 1%.
Oil prices, which rose to a 13-month high last month, seemed to extend losses that began last week based on expectations that OPEC + could be set to increase global supply.
“We expect them to grow in line with their previous policy agreement, which was announced in December 2020. And that is not to increase production by more than 500,000 barrels a day. We expect this policy to still be valid. Louise Dickson, an analyst at Rystad Energy, told CNBC by telephone.
Organization of the Petroleum Exporting Countries (OPEC) logo at headquarters.
Omar Marques | LightRocket | Getty Images
She added that OPEC could, in theory, increase production by 1.3 million barrels per day, but “we do not think they will exceed this time.”
“Russia will increase momentum in their market vision, but we don’t see a complete transition. In the last year, OPEC + has been really firm under the reins of Saudi Arabia, guiding politics, making calls, firing, and I don’t think that after a year of such market and supply diligence, the group is ready to change course only on a whim of 65 USD Brent or an increasingly tight oil market, ”she said.