Oil pumps, also known as “nodding donkeys”, are reflected in a puddle when they operate in an oil field near Almetyevsk, Russia on Sunday, August 16, 2020.
Andrey Rudakov | Bloomberg via Getty Images
LONDON – A group made up of some of the world’s most powerful oil producers decided on Thursday to gradually curb existing production cuts starting next month.
A further 350,000 barrels per day will be added to production from May, and another 350,000 will come onto the market in June. From July production will increase by 450,000 barrels per day.
The OPEC + alliance is currently cutting a little over 7 million barrels per day to prop up prices and reduce oversupply. OPEC King Saudi Arabia has voluntarily added an additional million barrels a day to these cuts.
Saudi Arabia said it will start curbing its voluntary production cuts in May.
The meeting will take place shortly after the Suez Canal reopened and the coronavirus spread around the world. French President Emmanuel Macron ordered the country to put pressure on the country to ease some pressure on hospitals.
The ongoing coronavirus crisis continues to cloud the demand outlook, and analysts expect this to reaffirm Saudi Arabia’s caution about the global economic recovery.
Before the meeting, the analysts thought the group would keep production levels constant.
Eurasia Group analysts noted that the past month saw “significant volatility” and a sell-off in global oil markets that cut Brent crude oil futures from $ 70 to $ 62 a barrel before rising by 64 in the past few days USD stabilized.
“The Suez Canal incident has likely helped many oil producers as it prevented prices from falling further,” Eurasia Group analysts said in a research report released on Wednesday.
“Once again, it is far from clear that a sustained recovery would warrant a strong cycle of OPEC + rejuvenation to be followed every month. Saudi Arabia’s caution about the global economic recovery was in many ways justified,” they added. The international reference Brent crude oil futures were up $ 2.38, or 3.8%, to trade at $ 65.08 a barrel.
The US West Texas Intermediate Futures were trading at $ 61.63, up more than 4%. Both contracts had previously been in the red during the session.
Ahead of the meeting, OPEC General Secretary Mohammed Barkindo stressed the need to “remain very cautious” as uncertainties persist due to the uncertainties and fragility caused by the coronavirus pandemic.
Similarly, Saudi Arabia has encouraged previously allied partners to remain “extremely cautious” about production policies, warning the group against complacency as it seeks to ensure a full recovery in the oil market.
The non-OPEC leader Russia, meanwhile, has tried to get the group to push ahead with an increase in supply.
“I think if you look into the second half of the year, where demand may rise by 4 to 5 million barrels in the third and fourth quarters, the oil market tense is about to reappear” Neil Beveridge, a senior oil director and gas analyst at Bernstein, told CNBC’s “Capital Connection” on Thursday.
“Right now it feels too early to crank production, but there is a lot of pent-up demand in the second half of the year and OPEC has to bring oil to market if it is to control prices.”
US Saudi call
US Energy Secretary Jennifer Granholm said Thursday via Twitter that she spoke with Saudi Arabia’s Energy Secretary Prince Abdulaziz bin Salman to reiterate “the importance of international cooperation in ensuring affordable and reliable energy sources for consumers.”
It was believed to be the first phone call from a US official to Riyadh prior to an OPEC meeting since President Joe Biden took office.
OPEC + initially agreed to cut oil production by a record 9.7 million barrels a day last year, before slashing cuts to 7.7 million and eventually 7.2 million from January.
Saudi Arabia has since made cuts of 1 million from early February to March, but these are set to expire unless further measures are announced on April 1.