LONDON – A group of some of the most powerful oil-producing nations in the world will meet on Thursday to discuss the next phase of production policy amid the coronavirus crisis.
OPEC and its non-OPEC partners, an energy alliance sometimes called OPEC +, will meet by videoconference starting at 1 pm, London time. A press conference is scheduled to take place after the meeting closes.
Analysts expect OPEC + to reverse some of the production cuts made last year, although oil prices have plummeted with speculation that the group may decide against increasing supply.
International benchmark Brent oil futures traded at $ 63.78 a barrel during morning trading, down almost 0.5%, while US West Texas Intermediate (WTI) oil futures stood at $ 60.94, around 0.5% lower in the session.
Oil futures have skyrocketed to pre-virus levels in recent weeks, driven by substantial cuts in OPEC + production and the mass rollout of Covid-19 vaccines in many high-income countries.
OPEC’s de facto leader, Saudi Arabia, has publicly encouraged allied partners to remain “extremely cautious” in production policy, warning the group against complacency as it seeks to ensure a full recovery in the oil market.
Russia, which does not belong to OPEC, for its part, has indicated that it wants to move ahead with an increase in supply, claiming last month that the market has already stabilized.
Energy analysts told CNBC earlier this week that they expect OPEC + to discuss allowing up to 1.3 million barrels a day to return to the market in April and perhaps later.
Oil-pumping monkeys, also known as “shaking donkeys”, are reflected in a puddle while operating in an oil field near Almetyevsk, Russia, on Sunday, August 16, 2020.
Andrey Rudakov | Bloomberg via Getty Images
Amrita Sen, chief oil analyst at Energy Aspects, told CNBC’s “Squawk Box Europe” on Thursday that the oil’s spare capacity would be the group’s “biggest challenge”.
“I understand that it’s not just April that they are talking about. (Saudi Arabia is) essentially saying to everyone: ‘Look, it’s April and May.’ Just like they did in January, when they discussed February and March production, “said Sen.
Saudi Arabia understands that oil producers, such as Russia, Iran and the United Arab Emirates, want to start injecting more oil into the market, she continued. However, Riyadh remains “laser focused” on reducing global oil stocks to the industry’s five-year average and will therefore pressure the group to postpone reverse cuts until May.
‘Essentially different views and interests’
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, the head of OPEC, has since taken voluntary cuts of 1 million from the beginning of February to March.
“Characteristic of typical divisions within OPEC +, the meetings will be the home of a passionate debate, reflecting essentially different views and interests. Saudi Arabia remains the central force behind the market management strategy and is by far the most cautious of all member states, “analysts at the Eurasia Group said in a research note.
“Complex and contradictory dynamics that have emerged in the past few days will complicate decision-making, but overall the most likely outcome is to decrease about 1 million bpd, which would include a partial reversal of Saudi Arabia’s previous 1 million bpd cut. “
VIENNA, AUSTRIA – 20/06/2018: the OPEC logo is seen in the building of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna. The 174th OPEC meeting will be held on 22 June 2018 in Vienna. (Photo by Omar Marques / SOPA Images / LightRocket via Getty Images)
SOPA images | LightRocket | Getty Images
Before Thursday’s meeting, OPEC Secretary-General Mohammed Barkindo emphasized the need to remain cautious while several ministers were pushing for loosening of production quotas.
He warned that the Covid crisis still poses negative risks to the global economy and that the distribution of vaccines, which favors the richest nations in the world, could lead to an uneven recovery.
“The speculation is that Saudi Arabia could really surprise the market by not returning its two-month bln cuts of 1 million bl / day that it is maintaining from February to March 2021,” said Bjarne Schieldrop, chief commodity analyst at SEB, in note.
“Our expectation is that OPEC + will increase production between 1-1.5 million bl / day in April 2021. If the group increases only 1 million bl / day, it would imply that Saudi Arabia continues to unilaterally retain more than their fair share of the burden to further support the market, “added Schieldrop.