Oil pumps, also known as “nodding donkeys”, are reflected in a puddle when they operate in an oil field near Almetyevsk, Russia on Sunday, August 16, 2020.
Andrey Rudakov | Bloomberg via Getty Images
LONDON – A group made up of some of the world’s most powerful oil producers decided on Thursday to gradually curb existing production cuts starting next month.
A further 350,000 barrels per day will be added to production from May, and another 350,000 will come onto the market in June. From July production will increase by 450,000 barrels per day.
The OPEC + alliance is currently cutting a little over 7 million barrels per day to prop up prices and reduce oversupply. OPEC kingpin Saudi Arabia has voluntarily added another 1 million barrels per day to these cuts.
Saudi Arabia said it will start curbing its voluntary production cuts in May.
The meeting will take place shortly after the Suez Canal reopened and the coronavirus spread around the world. French President Emmanuel Macron ordered the country to put pressure on the country to ease some pressure on hospitals.
The ongoing coronavirus crisis continues to cloud the demand outlook, and analysts believe this will reaffirm Saudi Arabia’s caution about the global economic recovery.
Before the meeting, the analysts thought the group would keep production levels constant.
Eurasia Group analysts noted that the last month in global oil markets “saw significant volatility” with a sell-off in Brent crude oil futures falling from $ 70 to $ 62 a barrel before stabilizing at $ 64 in the last few days .
“The Suez Canal incident has likely helped many oil producers as it prevented prices from falling further,” Eurasia Group analysts said in a research report released on Wednesday.
“Once again, it is far from clear that a sustained recovery would warrant a strong cycle of OPEC + rejuvenation to be followed every month. Saudi Arabia’s caution about the global economic recovery was in many ways justified,” they added. The international reference Brent crude oil futures gained $ 2.38, or 3.8%, to trade at $ 65.08 a barrel.
The US West Texas Intermediate Futures were trading at $ 61.63, up more than 4%. Both contracts had previously been in the red during the session.
Ahead of the meeting, OPEC Secretary General Mohammed Barkindo stressed the need to “remain very cautious” as uncertainties persist due to the uncertainties and fragility caused by the coronavirus pandemic.
Similarly, Saudi Arabia has encouraged previously allied partners to remain “extremely cautious” about production policies, warning the group against complacency as it seeks to ensure a full recovery in the oil market.
The non-OPEC leader Russia, meanwhile, has tried to get the group to push ahead with an increase in supply.
“I think if you look to the second half of the year, where demand may rise by 4 to 5 million barrels in the third and fourth quarters, then I think this is when the oil market tensions will re-emerge Neil Beveridge, a senior oil and gas analyst at Bernstein, told CNBC’s Capital Connection on Thursday.
“Right now it feels too early to kick-start production, but there is a lot of pent-up demand early in the second half of the year and OPEC needs to bring oil to market to control prices.”
US Energy Secretary Jennifer Granholm said Thursday via Twitter that she spoke with Saudi Arabia’s Energy Secretary Prince Abdulaziz bin Salman to reiterate “the importance of international cooperation in ensuring affordable and reliable energy sources for consumers.”
It was believed to be the first call from a US official to Riyadh prior to an OPEC meeting since President Joe Biden took office.
OPEC + initially agreed to cut oil production by a record 9.7 million barrels a day last year, before slashing cuts to 7.7 million and eventually 7.2 million from January.
Saudi Arabia has since made cuts of 1 million from early February to March, but these are set to expire unless further measures are announced on April 1.