Saudi Energy Minister Abdulaziz bin Salman (R) appears in the picture with his Russian counterpart Alexander Novak when they arrive at a meeting of the Saudi-Russian Joint Committee on December 19, 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 the reversal of some of the production cuts it made last year.
OPEC and its non-OPEC partners, an energy alliance sometimes called OPEC +, will meet by video conference to try to reach a consensus on how to manage supply to the market.
Last year, the group agreed to restrict the amount of oil it produces to boost oil prices, as strict public health measures coincided with an unprecedented fuel demand shock.
This week’s supply decision comes at a time when oil prices have risen to pre-virus levels, production in the United States has been successful due to freezing storms and the coronavirus pandemic continues to cloud the prospects.
OPEC’s de facto leader, Saudi Arabia, has publicly encouraged Allied partners to remain “extremely cautious” in production policy, and has warned the group against complacency as it tries to navigate the current Covid crisis. 19.
Meanwhile, Russia, which is not an OPEC leader, has indicated 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 much and exactly which countries will be affected.
At an industry event last month, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman informed those trying to predict the next step of the energy alliance: “Don’t try to predict the unpredictable.”
Both Saudi and Russia “will get what they want”
Tamas Varga, an analyst at PVM Oil Associates, told CNBC over the phone that he believed OPEC and non-OPEC partners had done an “incredible job” in rebalancing the market.
However, as global oil demand recovers, he warned that the recovery remains “very, very fragile.”
“What really matters here is Russia and Saudi Arabia. The unequal price of Russia’s budget is much lower than Saudi Arabia’s, so you’ll see a kind of gap in opinions between those two countries,” Varga said. .
OPEC + initially agreed to reduce oil production by a record 9.7 million barrels per day last year, before reducing the cuts to 7.7 million and finally to 7.2 million from the gener. From early February to March, the head of OPEC Saudi Arabia has taken on voluntary cuts of 1 million.
An oil pumping jack, also known as a “donkey with a 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, seemed to signal Moscow’s intention to increase supply last month, saying the market has already balanced.
“Russia wants to return to normal production as soon as possible, while Saudi Arabia wants to enjoy high prices for a while longer and keep the market down rather than down. We believe they will both get what they want.” , said Bjarne Schieldrop, chief analyst at SEB Commodities, said in a research note.
Russia is likely to be allowed to further increase production, he added, while Saudi Arabia will return “part or potentially all” of its million barrels a day of unilateral cuts.
Analysts expect OPEC + to discuss the possibility of returning to the market up to 1.3 million barrels on Thursday.
Russia will increase momentum in its vision of the market, but we do not see a complete transition.
Louise Dickson
Analyst at Rystad Energy
“Saudi Arabia’s statements indicate that they are on the prudent side. Rather keep it a little tight a little too long than meet an oversupply before Covid-19 vaccines perform their magic on the ‘global economic activity and oil demand’. Schieldrop said.
“The next OPEC + meeting is therefore unlikely to ruin the oil holiday relative to the April supply, as the overall result is likely to leave the market slightly short rather than surplus.”
OPEC + is not yet ready to change course
International benchmark Brent crude futures traded at $ 63.01 a barrel on Tuesday morning, nearly 1.1% lower, while Northwest West Texas (WTI) crude futures they stood at $ 60.02, up more than 1%.
Oil prices, after rising to a 13-month high last month, seemed to extend the losses that began last week with the forecast that OPEC + will be set to increase global supply.
“Our expectation is that they will increase in line with their previous policy agreement that was announced in December 2020. And it is not to increase production by more than 500,000 barrels a day. We hope this policy is still valid,” Louise Dickson , a Rystad Energy analyst, told CNBC over the phone.
The logo of the Organization of the Petroleum Exporting Countries (OPEC) at headquarters.
Omar Marques | LightRocket | Getty Images
He added that OPEC could, in theory, increase production by 1.3 million barrels a day, but “we don’t think they will exceed this time.”
“Russia will increase momentum in its vision of the market, but we do not see a complete transition. Over the last year, OPEC + has been really firmly under the reigns of Saudi Arabia, guiding politics, making the calls. , provoking the decision, etc. And I don’t think that after a year of so much diligence in the market and supply, the group is ready to change course just for a whim of $ 65 Brent or for an oil market getting tighter and tighter, ”he said.