The Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, a group so-called OPEC+, met by videoconference on March 4 to consider a potential oil production increase but decided to leave output unchanged.
“Moscow will remain very careful to coordinate any action with Saudi Arabia. It will not risk the sort of misunderstanding that led to the previous OPEC+ deal collapsing this time last year,” Chris Weafer, co-founder of Macro-Advisory in Moscow, told New Europe on March 4 as the meeting progressed.
Moscow has sought to raise production at a faster pace than Riaydh has wanted as Russia is in a different, and better, position than is Saudi Arabia and most other OPEC nations. “It has reduced the budget oil price (Brent) breakeven to under $50 per barrel – in 2013 it needed $115 per barrel. It was forced to introduce the so-called Fiscal Rule as a direct result of having to adapt to the US sanctions,” Weafer said.
He explained that Moscow’s priority, within the OPEC+ agreement, is that it can fully recover all of the 2 million barrels it agreed to cut from May last year, when the agreement expires. “It wants to achieve this in stages as that best suits the Russian oil geology and geography. Moscow is specifically opposed to delaying the return of its oil production in order to keep the oil price as high as possible,” Weafer said, adding that this appears to be Saudi Arabia’s strategy and the reason why the Kingdom voluntarily cut the additional 1 million barrels from exports in early January.
Russia is opposed to that strategy because it does not need the higher oil price to balance its budget, it is concerned that the higher price will bring back more US oil to the world market and it could not turn on shuttered oil production as quickly as most OPEC states can, the Moscow-based expert told New Europe.
“Moscow would be much happier with the staged rebuild of its oil exports and an average oil price (Brent) in the low to mid-$50s. That would mean it has, at least, a balanced budget and it can regain its previous export oil market share,” Weafer said.
He noted, however, that Russia did, of course, welcome the extra Saudi cut in January. “It was able to raise production in February and March and also benefited from the higher oil price,” Weafer said, adding, “I am sure the Kremlin would be happy to see that cut extended because the Russian budget is the big winner from that action”.
Russia’s Deputy Prime Minister Alexander Novak, who is the Kremlin’s coordinator with OPEC, reportedly said while the new strains of coronavirus presented a big uncertainty, the oil market was in much better shape than before.
Meanwhile, Saudi Oil Minister Prince Abdulaziz bin Salman said on March 4 that while there was “no doubt” the market had improved since January, he wanted to “urge caution and vigilance”.
“Before we take our next step forward, let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train,” FT quoted him as saying, as a meeting of oil ministers got under way. “The right course of action now is to keep our powder dry, and to have contingencies in reserve to ensure against any unforeseen outcomes,” he added.
The Saudi Energy Minister said OPEC+ should endanger the groups actions which kept oil prices in check in recent months. Brent crude rose 2% after the comments to $65.30 a barrel.
The coronavirus pandemic led to travel bans and government lockdowns which hit demand for oil dramatically last year and forced global producers to take collective action to bolster prices. However, optimism about the coronavirus vaccines has helped crude oil prices recover and could potentially lead to increased economic activity and greater demand for oil this year. In addition, production growth from US shale producers is expected to be restrained this year.
At the 14th Meeting of OPEC and non-OPEC countries on March 4, the ministers emphasized the ongoing positive contributions of the Declaration of Cooperation (DoC) in supporting a rebalancing of the global oil market in line with the historic decisions taken at the meeting on April 12, 2020, to adjust downwards overall crude oil production and subsequent decisions.
“The Ministers noted, with gratitude, the significant voluntary extra supply reduction made by Saudi Arabia, which took effect on February 1 for two months, which supported the stability of the market,” OPEC said in a press release, adding that the Ministers also commended Saudi Arabia for the extension of the additional voluntary adjustments of 1 million barrels per day for the month of April 2021.
The Ministers 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, OPEC said.
The Meeting welcomed the positive performance of participating countries, OPEC said, adding that overall conformity with the original decision was 103%, reinforcing the trend of aggregate high compliance by participating countries.
“The Meeting noted that since the April 2020 meeting, OPEC and non-OPEC countries had withheld 2.3 billion barrels of oil by end of January 2021, accelerating the oil market rebalancing. The Meeting Extended special thanks to Nigeria for achieving full conformity in January 2021, and compensating its entire overproduced volumes,” OPEC said, adding that the Ministers agreed to the request by several countries, which have not yet completed their compensation, for an extension of the compensation period until end of July 2021.
The OPEC+ meeting urged all participants to achieve full conformity and make up for pervious compensation shortfalls, to reach the objective of market rebalancing and avoid undue delay in the process.
According to OPEC, ministers recognized the recent improvement in the market sentiment by the acceptance and the rollout of vaccine programs and additional stimulus packages in key economies, but cautioned all participating countries to remain vigilant and flexible given the uncertain market conditions, and to remain on the course which had been voluntarily decided and which had hitherto reaped rewards.
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