The Organization of the Petroleum Exporting Countries and a group of other big producers led by Russia (OPEC+) agreed Apr. 1 to gradually raise collective oil production over the next 3 months, expecting a return of demand as COVID-19 vaccinations roll out around the world.
OPEC+ will start adding about 350,000 b/d in May. The increase will be followed by another 350,000 b/d in June, and then further easing of some 450,000 b/d in July, according to delegates.
Saudi Arabia is also gradually bringing back the voluntary cuts of 1 million b/d that it put in place earlier this year. It will bring back 250,000 b/d in May, 350,000 b/d in June, and 400,000 b/d in July of its voluntary cuts.
Collectively, 600,000 b/d of crude oil is coming back in May.
Iran and Libya have so far been exempted from the alliance’s agreement to reduce supplies, but the two countries have recently managed to stage a recovery.
France said Mar. 31 that it will re-impose a national lockdown, underlining doubts about the pace of recovery from the pandemic.
Comments
“The decision by OPEC+ shows that patience was exhausted among many producers, who could not accept that some countries – and mainly Russia – were allowed to constantly hike their production while others kept it flat,” said Louise Dickson, oil markets analyst, Rystad Energy.
“The outcome of the meeting is also revealing that even though the group’s own experts warned about the lagging oil demand recovery and the market risks that the extended lockdowns are bringing, decision-makers have another vision. Market politics and financials prevail in such meetings and theory is not always met with what would be considered a reasonable action to address the current market risk.
“Taking into account the gradual production increase, May so far looks quite balanced, as a result of heavy maintenance across several countries and the delay of the Luanda refinery expansion in Angola.
“By mid-summer, we expect the vaccine hiccups to be a distant memory, and for many developing countries to be nearing 50% vaccination rates. Thus, we still expect end-user demand to pick up over the summer as economies open, and in line with seasonal demand. The summer demand surge, combined with OPEC+’s new plan, could push implied stocks down to an almost 3 million b/d deficit in August.”
