The Russian-led Petroleum Exporting Countries Group and its allies on Thursday decided to introduce conventional output cuts through April, much to the surprise of many traders who expected a price high oil attracts producers to promote production.
The group of representatives, known as OPEC +, said ministers had agreed to “continue March production levels for the month of April. ”
However, Russia and Kazakhstan will be allowed to increase production by 130,000 and 20,000 barrels per day, respectively, “due to continued seasonal consumption patterns.”
The decision came as a surprise to some, as oil prices have returned to their highest levels in more than a year, prompting producers to pick up production.
On Thursday, West Texas Intermediate CLJ21 crude,
CL.1,
its April contract saw it rise to $ 64.80 a barrel, up $ 3.52, or 5.8%. Prices based on the front month contract were looking at their highest limit since April 2019. Global benchmark, May Brent crude BRNK21,
trading at $ 67.67 a barrel, ready for the highest settlement since January 2020, up $ 3.60, or 5.6%, for the session to date.
“The market had expected OPEC + 1 million barrels to return,” said Rebecca Babin, senior trading trader at CIBC Private Wealth, USA “This is a bullish short-term yield for crude oil as it is likely to leave 2 million barrels in the market in April. ”
However, it should be noted that “a number of OPEC + producers will be looking at a rapid production ramp in the second half of the year, which will monitor prices in the long run,” she told MarketWatch.
Saudi Arabia also expanded its voluntary production cut of one million barrels per day, which was due to expire at the end of March, through the month of April.
“We are not quick, we are not angry – we are cautious,” Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said at the news conference, referring to his own one-sided cut.
“Our voluntary cut came of our own free will, and will also be taken back at our own discretion,” he said.
OPEC +, meanwhile, said that producers who did not make up for overproduction will continue to work towards that goal until the end of July.
With Saudi Arabia delaying the return of its voluntary oil production rations, “the domestic market is in for some downside, especially since most other OPEC + members were supporting the dissemination of group policy, ”Bjørnar Tonhaugen, head of oil markets at Rystad Energy, said in a statement email.
Overall, “OPEC has done an admirable job over the past year in managing supply against unprecedented demand, let alone preparation or preparation for it,” said Andy. Brogan, global oil and gas director at Ernst & Young.
“Of course prices are as they were before the COVID-19 crisis,” he said. “The voluntary cuts by Saudi Arabia have made a huge difference and other OPEC + members have every reason to be grateful for the Kingdom’s ability and willingness to take on their leadership role. ”
Brogan offered a dangerous outlook for oil consumption as the world economy recovered from the pandemic-related hit to demand.
“There is a lot of upside if demand returns to normal more quickly and capex cuts will continue to affect North American supply,” he said.
OPEC + will hold its next ministerial committee meeting on 31 March, with the OPEC and non-OPEC ministerial meeting scheduled for 1 April.