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The Organization of the Petroleum Exporting Countries and their Russia-led allies on Thursday reached a decision to rollover current production cuts through April, surprising many traders who expected the high price of oil to entice producers to boost output.
The group of producers, known as OPEC+ said ministers approved a “continuation of the production levels of March for the month of April.”
Russia and Kazakhstan, however, will be allowed to boost 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 climbed back to their highest levels in more than a year, presenting an incentive for producers to raise output.
On Thursday, West Texas Intermediate crude CLJ21, +4.90% CL.1, +4.90% saw its April contract rise to $64.80 a barrel, up $3.52, or 5.8%. Prices based on the front-month contract were looking at their highest finish since April 2019. Global benchmark, May Brent crude BRNK21, +4.76% traded at $67.67 a barrel, poised for the highest settlement since January 2020, up $3.60, or 5.6%, for the session so far.
“The market had been expecting OPEC+ to bring back 1 million barrels,” said Rebecca Babin, senior equity trader at CIBC Private Wealth, U.S. “This is bullish short-term outcome for crude oil as it likely leaves the market undersupplied by 2 million barrels in April.”
Still, it should be noted that “several OPEC+ producers will be looking to ramp production quickly in the second half of the year, which will keep prices in check over the longer term,” she told MarketWatch.
Saudi Arabia also extended its voluntary output cut of one million barrels per day, which was due to expire at the end of March, through the month of April.
“We’re not fast, we’re not furious — we’re cautious,” Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman said during the news conference, referring to its own unilateral cut.
“Our voluntary cut came through our own will, bringing it back will also be decided by our own will,” he said.
OPEC+, meanwhile, also said that producers who haven’t yet made up for past over production will continue to work toward that goal until the end of July.
With Saudi Arabia postponing the return of its voluntary oil production curtailments, “the market is in for some serious gains, especially since most other OPEC+ members supported a group policy rollover,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy, in emailed commentary.
Overall, “OPEC has done a remarkable job over the past year managing supply against a demand disruption that no one had ever contemplated, let alone foresaw or prepared for,” said Andy Brogan, global oil and gas leader at Ernst & Young.
“Prices are essentially what they were before the COVID-19 crisis,” he said. “The voluntary cuts by Saudi Arabia have made all the difference and other OPEC+ members have every reason to be grateful for the Kingdom’s ability and willingness to take on the leadership role that they have.”
Brogan offered a sanguine outlook for oil consumption as the world economy recovers from the pandemic-related hit to demand.
“There’s plenty of upside if demand comes back to normal sooner and North American supplies continue to be affected by capex cuts,” he said.
OPEC+ will hold its next ministerial committee meeting on March 31, with the OPEC and non-OPEC ministers meeting scheduled for April 1.
