OPEC + will decide its oil production policy as demand problems persist

LONDON – A group made up of some of the world’s most powerful oil producers will meet on Thursday to decide on the next phase of production policy.

OPEC and non-OPEC partners, a group sometimes referred to as OPEC +, are due to hold a virtual meeting starting at 1 p.m. London time.

The OPEC + alliance is currently reducing just over 7 million barrels per day in an effort to support prices and reduce oversupply. Saudi Arabia, the backbone of OPEC, has voluntarily added an additional 1 million barrels per day to these cuts.

The meeting comes shortly after the Suez Canal reopened to traffic and as the coronavirus continues to spread around the world, French President Emmanuel Macron ordering the country its third national lockdown to ease some of the pressure on them. hospitals.

The current coronavirus crisis continues to cloud the outlook for demand and analysts expect this to reaffirm Saudi Arabia’s caution regarding the global economic recovery.

Eurasia Group analysts said the most likely outcome of the OPEC + meeting is for the group to keep production unchanged from April and Saudi Arabia to continue withholding its million barrels. additional per day – although it may slightly reduce that figure by 100,000 barrels “to signal its willingness to adapt.”

They noted that the last month in global oil markets “was marked by a significant level of volatility” and a sell-off that brought Brent futures down to $ 62 a barrel from $ 70, before stabilizing around 64 dollars in recent days.

“The Suez Canal incident probably helped many oil producers as it prevented prices from falling further,” Eurasia Group analysts said in a research note released Wednesday.

“Once again, it is far from clear that a lasting recovery would justify a strong OPEC + cut cycle to be followed each month. Saudi Arabia’s cautiousness regarding the global economic recovery was well justified. regards, ”they added.

International benchmark Brent futures traded at $ 64.05 a barrel Thursday morning, about 2.1% higher, while US West Texas Intermediate futures were at $ 60.50 , up nearly 2.3%.

Ahead of the meeting, OPEC Secretary General Mohammed Barkindo stressed the need to “remain very cautious” due to the lingering uncertainties and fragility caused by the coronavirus pandemic.

Likewise, Saudi Arabia has previously urged its allied partners to remain “extremely cautious” on production policy, warning the group against complacency as it seeks to ensure a full recovery in the oil market.

Russia, a non-leader of OPEC, has, for its part, sought that the group continue to increase supply.

Two unidentified OPEC + sources told Reuters that an increase in oil production at Thursday’s meeting would not exceed 0.5 million barrels. CNBC has not been able to independently verify these sources.

“I think if you look into the second half of the year, with potentially growing demand of 4-5 million barrels as we move into the 3rd and 4th quarters, I think it’s really around this time. that the tension in the oil market is really going to reappear, ”Neil Beveridge, senior oil and gas analyst at Bernstein, told CNBC’s“ Capital Connection ”Thursday.

“At the moment it seems too early to increase production, but as we move into the second half there is a lot of pent-up demand and OPEC is going to have to get oil on the market if it is to control prices. “

US Energy Secretary Jennifer Granholm said Thursday via Twitter that she had met with Saudi Energy Minister Prince Abdulaziz bin Salman to reaffirm “the importance of international cooperation to ensure affordable and reliable energy sources for consumers ”.

It was believed to be the first call to Riyadh from a U.S. official ahead of an OPEC meeting since President Joe Biden took office.

OPEC + initially agreed to cut oil production from a record 9.7 million barrels per day last year, before slashing the cuts to 7.7 million and ultimately to 7.2 million from January.

Saudi Arabia has since taken $ 1million cuts from early February through March, though those are set to expire unless new measures are announced on April 1.