OPEC+ expected to stay cautious in face of market jitters

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Oil producing countries grouped together under the OPEC+ alliance led by Saudi Arabia and Russia are expected to agree an extension to their current output cuts at a meeting on Thursday.

© JOE KLAMAR The OPEC+ ministerial meeting will be held via videoconference

Their third ministerial meeting of 2021 will be held via videoconference and is scheduled to start at 1200 GMT.

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“The producer alliance is virtually guaranteed to extend current oil cuts into May,” according to Stephen Brennock of PVM, reflecting a widespread view among analysts.

“It may even go a step further and prolong supply curbs into June,” he added, with the possibility that Russia and Kazakhstan may be given some small leeway to increase output as happened earlier in the year.

Under its current agreement, the OPEC+ group — made up of the Organization of Petroleum Exporting Countries and its allies — is enforcing drastic cuts in production, meaning seven million barrels that could be shipped to markets every day are being left in the ground.

In addition, Saudi Arabia has volunteered to cut its own output by one million barrels per day (bpd) to help avoid oversupplying a market suffering from a collapse in demand due to the coronavirus pandemic.

Without the cuts, limited storage capacity could be saturated and prices — currently hovering around $60 per barrel — could fall. 

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– ‘Challenging environment’ –

After signs at the beginning of the year that the arrival of vaccines could improve the pandemic situation, the market has been dampened by a third wave in Europe and the spread of the virus in key crude consumer markets such as India and Brazil.

The International Energy Agency (IEA) reflected this more downbeat outlook in forecasts contained in its last report this month.

It estimated that global demand could take another two years to get back to its pre-crisis levels.

On Wednesday, OPEC+ ministers held preliminary discussions in the form of its Joint Ministerial Monitoring Committee (JMMC), which is tasked with overseeing implementation of agreements.

OPEC Secretary General Mohammed Barkindo told ministers that “we need to remember that the environment remains challenging, complex and uncertain”.

The “market volatility” in recent weeks was “a reminder of the  fragility facing economies and oil demand,” Barkindo added, pointing to the “uneven rollout of vaccines”, recurring lockdowns and “inflationary pressures” as causes for concern.

“While normally such bearish statements would cause prices to dive, today they work in a different way, as they are the reason the market believes OPEC+ will not raise output,” said Louise Dickson of Rystad Energy.

Despite the usual differences in opinion between members, OPEC+ has been able to agree on a policy of slow increases in capacity based on “caution”, a watchword of Saudi Energy Minister Prince Abdulaziz bin Salman.

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