The Organization of Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+, reportedly maintained its oil output policy at a Joint Ministerial Monitoring Committee (JMMC) meeting convened via teleconference on February 3.
OPEC+ is optimistic for a year of recovery in 2021, a statement issued after the meeting read, Reuters reported, noting that the OPEC+ panel made no mention of changing policy, which calls for most members to hold supply steady in February and OPEC-kingpin Saudi Arabia to slash production voluntarily by 1 million barrels per day this month and next.
The 14th OPEC and non-OPEC Ministerial Meeting is scheduled for March 4. At that meeting, fundamental disagreements between the Saudis and Russia are expected to resurface. While Riyadh has sought higher prices to cover government spending, Moscow is prepared to increase production and lower prices wanting to deter US shale producers from coming back into the market. At last month’s meeting, Russian Deputy Prime Minister Alexander Novak proposed a output increase, and tried to dissuade Saudi Arabia from unilaterally cutting production by 1 million barrels per day.
Oil has rallied from historic lows hit last year as the COVID-19 pandemic hit demand, thanks to record output cuts by OPEC+ that the group is beginning to unwind.
“While economic prospects and oil demand would remain uncertain in the coming months, the gradual rollout of vaccines around the world is a positive factor for the rest of the year, boosting the global economy and oil demand,” the statement issued after the meeting read.
A day earlier, at the Joint Technical Committee (JTC) meeting to assess oil market conditions and examine its developments and trends, OPEC Secretary General, Mohammad Sanusi Barkindo, highlighted the improving prospects for the global oil market and the world economy at large.
The global economy is forecast to grow by 4.4% in 2021, a substantial shift from -4.1% last year. “With the crude oil market currently switching into backwardation, we are hopeful that 2021 will be a good year for overall demand,” Barkindo was quoted as saying in a statement posted on the OPEC website.
The Secretary General also underlined the effective role of the Declaration of Cooperation (DoC) in helping to restore confidence and balance in the global oil market throughout the COVID-19 pandemic, noting that the DoC has become a model platform for multilateralism and international dialogue.
Barkindo said that the DoC’s actions have benefited producing and consuming countries alike by supporting market rebalancing and stabilization.
“Our careful market monitoring, regular consultations, and step-by-step approach have been instrumental in providing much-needed support and assurance throughout the very, very difficult months of 2020, and continue to bear fruit for the market in 2021,” the Secretary General stated.
Justin Urquhart Stewart, co-founder of Regionally in London, told New Europe by phone of February 4 the OPEC+ agreement is working and prices are recovering.
Oil prices extended gains on February 4. According to Reuters, Brent crude futures gained 25 cents, or 0.43%, to $58.71 a barrel, having earlier hit their highest since February 21 last year. US West Texas Intermediate (WTI) crude futures climbed 31 cents, or 0.56%, to $56 a barrel after reaching its highest settlement level in a year on February 3.
Also boosting prices, US crude oil stockpiles fell by 994,000 barrels last week to 475.7 million barrels, the lowest level since March, the US Energy Information Administration (EIA) said on February 3.
Cautious optimism amid COVID crisis
“It’s almost at the moment that everyone is hoping everything stays as it is whilst we hopefully come out of the pandemic and the optimism that in a few months maybe we see the vaccines having an impact, the western countries start seeing a pick up and we see some further support. But it’s very, very sensitive at the moment,” Urquhart Stewart said. “It’s a certain optimistic attitude which is people are hoping that we can maintain this. But it wouldn’t take much of a shock to actually move the price again quite dramatically. What would be the shock? If the vaccines seem fail, another wave of the pandemic, something like that, and the weakness in China got significantly worse,” the London-based expert said.
“But this year we see this sort of building up of optimism compared to last year that we are seeing an improvement, we got the vaccines, global economy starts to recover and the latter part of the year would be more encouraging. But there is a level of nervousness that means that both markets and oil price could easily be a lot more volatile and drop quite drastically. So, it’s more hope than confidence I think at the moment,” Urquhart Stewart said. “But at the moment it is moving the right way so that’s encouraging. Personally, I had my first (COVID) jab so I feel better,” he quipped.
At the OPEC+ meeting next month Russia might push for relaxing the curbs, Urquhart Stewart said. “They would like to see more oil production. They need the money,” he said. Iraq also wants to increase oil sales to recover from an economic crisis while Iran hopes that US President Joe Biden will reactivate the Iran nuclear deal easing US sanctions on Tehran, allowing the Islamic republic to resume oil exports to previous levels.
Iranian oil production has almost halved since mid-2018, when the Trump Administration pulled out of a nuclear accord with Iran and tightened sanctions.
Meanwhile, the US reportedly filed a lawsuit this week to seize 2 million barrels of oil that it claims came from Iran. The US alleges that Iran’s Islamic Revolutionary Guard Corps covertly shipped the oil abroad, disguising the origin of the oil using ship-to-ship transfers, false documents, and other means.
Finally, Urquhart Stewart pointed out that the Biden policy towards all carbon industries is tightening and could start having an effect. “The overall change in policy is quite significant but hasn’t had an impact yet. But it would certainty make life much more difficult for the shale producers,” he said.
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