A new wave of COVID lockdowns could cause OPEC + to extend the cuts until May at its meeting on Thursday, Reuters reports.
Saudi Arabia is ready to support the extension of OPEC and its allies’ oil cuts in May and June and is also ready to extend its own voluntary cuts to raise oil prices amid a new wave of coronavirus lockdown, Reuters news agency reported, citing an informed source on the matter.
As oil prices rose steadily at the start of this year, the Organization of the Petroleum Exporting Countries and its allies, known as OPEC +, had hoped to soften production cuts.
But last week, four OPEC + sources told Reuters that a new wave of lockdowns would most likely encourage the group to extend the cuts until May at its meeting on Thursday.
On Monday, the source said Saudi Arabia wanted to extend the cuts until June.
“They don’t see the demand strong enough yet and want to prevent prices from falling,” the source said. Saudi Arabia’s energy ministry did not respond to a request for comment.
OPEC and its partners will examine Thursday whether to revive part of the 8 million barrels of daily production – around 8% of global supply – that it is holding back while demand for fuel remains depressed.
The cartel intervention helped raise crude prices by more than 20% this year – even as the economic ravages of the pandemic continued – boosting revenues both for its members and for a beleaguered global oil industry .
The cuts affect OPEC, led by Saudi Arabia, as well as non-OPEC producers led by Russia. Together, their reductions currently stand at just over 7 million barrels per day (b / d) plus a further voluntary reduction of 1 million b / d by Saudi Arabia.
Last year cuts hit a record 9.7 million bpd, or about 10% of global production.
With oil prices still significantly below the levels many OPEC countries need to cover government spending, delegates say the coalition should be cautious again on Thursday.
OPEC + had already surprised the market on March 4 by deciding to keep production globally stable. Russia and Kazakhstan were allowed to increase production slightly.
A source close to Russia’s thinking said on Monday that Moscow would again support an extension of the cuts while seeking a further slight increase in production for itself.
The Russian government does not have the same budgetary need for high prices as the Saudis, so giving it the wiggle room to pump a bit more while other countries maintain their restraint is seen as the price Riyadh has to pay to ensure Moscow’s continued cooperation, said Bjarne Schieldrop. , chief commodity analyst at SEB AB.
Benchmark Brent crude futures, which hit their highest level since before the pandemic this month at $ 71 a barrel, have since fallen to around $ 65.
Another reason oil producers are cautious is the increase in Iranian crude exports, which has also weighed on prices. Iran has managed to increase its shipments in recent months despite US sanctions.
An increase in output from the larger coalition of 23 countries is more likely later in the year. Demand for oil is on the mend in the United States, the largest consumer, and already above pre-virus levels in China, the second largest.
As the vaccine rollout is poised to allow economies to return to normal and further accelerate consumption, OPEC predicts that the excess oil stocks accumulated deep in the pandemic will disappear in the coming years. month. Long-term futures price gauges indicate that inventories will tighten sharply in the second half of the year.
Riyadh and its partners could also face a little more urgency to restore idle production if legislation introduced in the US Senate last week to penalize OPEC for “price fixing” becomes law. But such a turning point does not seem to have arrived yet.