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The decision by the Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC +, to gradually increase crude production from May to July led to a somewhat surprising rise in oil prices. Thursday.
Saudi Arabia will also reverse its voluntary cuts during the three-month period.
The OPEC + move “appears to be a risky decision amid the uncertainty of oil demand,” said Manish Raj, chief financial officer of Velandera Energy. “The market is applauding, nonetheless, as there is a clear path through July, and today’s deal takes the uncertainty out of the month-to-month exit calibrations that have been in place since December.”
At a press conference, Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC + would increase daily oil production by 350,000 barrels in May, 350,000 barrels in June and 441,000 barrels in July.
OPEC + was holding around 8 million barrels per day of production, of which 1 million was a voluntary reduction by Saudi Arabia.
However, Prince Abdulaziz also said Saudi Arabia would phase out this voluntary reduction, announced at the January meeting. It will ease the reduction per day of 250,000 barrels in May, 350,000 barrels in June and 400,000 barrels in July. This means the Saudis would essentially stop their voluntary reduction in July.
“The deal supports oil prices, but should also help avoid a sharp rise as demand for oil increases,” said Ann-Louise Hittle, Wood Mackenzie vice president, Macro Oils, in a comment by email.
Wood Mackenzie predicts a “strong recovery in oil demand by the third quarter for the United States” and expects total global oil demand to grow 6.2 million barrels per day year on year. year in 2021, she said.
Saudi Arabia’s decision to add more oil is a “key takeaway” from the meeting, said Peter McNally, global industry, materials and energy leader at Third Bridge. “After months of restrictive production, Saudi Arabia will gradually add barrels, although this is offset by offsetting barrels from other members.
OPEC + has extended the deadline for countries to offset production beyond their quotas until the end of September.
The group will also continue to assess oil market conditions on a monthly basis and will decide to adjust production, up or down, for the following month by a maximum of 500,000 barrels per day.
The production decision “shows that the patience was exhausted with many producers, who could not accept that some countries – and mainly Russia – were allowed to constantly increase their production while others kept it stable,” said Louise. Dickson, Oil Market Analyst at Rystad Energy.
“The increase in production is unlikely to be detrimental, especially for June and July, as demand is likely to increase as well, and this is reflected in the market reaction, which is not a panic to reduce price levels. “she said in an emailed comment.
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“The increase in production is unlikely to be detrimental, especially for June and July, as demand will likely also increase…”
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Thursday, May West Texas Intermediate crude CLK21,
CL.1,
added $ 2.29, or 3.9%, to settle at $ 61.45 a barrel on the New York Mercantile Exchange, after hitting a new intraday high of $ 61.75 following the announcement of OPEC +.
Brent Jun Brent BRNM21,
BRN00,
tacked on $ 2.12, or 3.4%, to end at $ 64.86 a barrel on ICE Futures Europe.
“The bottom line is that the oil market is still receiving almost 2 million barrels a day over the next three months,” Dickson said. “We always knew those barrels would come back eventually, the question now is whether they arrive too early for what the market can digest.”
OPEC + will hold its next meeting on April 28.
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