LONDON: The Opec group of oil producers and its allies decided to allow a slight rise in crude output in the face of fragile market demand after talks on Thursday, less than a third of the amount market observers had predicted.
A statement released after the ministerial-level talks said that participants “approved a continuation of the production levels of March for the month of April, with the exception of Russia and Kazakhstan, which will be allowed to increase production by 130,000 and 20,000 barrels per day respectively, due to continued seasonal consumption patterns”.
The 150,000 barrels per day (bpd) increase is much less than the 500,000 bpd boost some market observers had predicted.
The so-called Opec+ group sharply cut output last year to counter a sudden plunge in prices caused by the coronavirus pandemic, but it agreed to gradually increase supply in January.
Now that vaccination campaigns are underway and demand from top oil importer China has bounced back to pre-pandemic levels, Moscow was said to be keener to turn on the taps again but Riyadh had been seen as arguing for keeping the status quo.
Saudi Arabia will extend its additional voluntary cuts of one million bpd for the month of April, the statement said.
Oil prices surged more than five per cent higher during the meeting on speculation that the group would keep a tight lid on production.
“The uncertainty surrounding the pace of recovery has not receded,” Saudi Energy Minister Prince Abdelaziz bin Salman said at the start of the closed-door meeting.
“At the risk of sounding like a stuck record — I would once again urge caution and vigilance.” For his part, Russian Deputy Prime Minister Alexander Novak said “the market has not yet fully recovered”, but that “we are now in a much better shape and state of the market than we were just a few months ago”.
While the differences between Riyadh and Moscow were not as visible during almost a year of lower prices, the return of prices close to pre-pandemic levels — around 65 euros per barrel — had threatened to revive tensions.
The speed at which demand will return remains subject to several factors, not least the success of vaccination programmes which have got off to a shaky start in some countries.
The International Energy Agency (IEA) warned in its last monthly report in February that the rebalancing of the market was still “fragile” and that coronavirus variants could represent a risk to recovery.
During the January meeting, the alliance of 23 oil exporters needed two tough days of talks to agree to gradually increase supply.
While 7.125 million bpd were withheld from the market in February, the cartel lowered that figure to 7.05 million bpd for March, supplying the market with an additional 75,000 bpd.
Iran, Venezuela and Libya have been exempt from OPEC’s quotas, while countries like Iraq and Nigeria have produced above quota for months, flouting the cartel’s agreement.
Published in Dawn, March 5th, 2021