OPEC’s top official warned that oil demand remains fragile as the cartel and its partners headed for talks on whether to prolong their vast production curbs.
Source: Bloomberg News, by Grant Smith and Salma El Wardany
“We should not be out smelling the flowers just yet,” Secretary-General Mohammad Barkindo told a committee of ministers that lays the ground for their main meeting, scheduled for Thursday.
The oil market is “surrounded by uncertainties, including the prevalence of Covid-19 variants, the uneven rollout of vaccines, further lockdowns and third waves in several countries,” Barkindo said.
The Organization of Petroleum Exporting Countries and its allies are widely expected to maintain their output curbs for at least another month. Bolstering that view, the coalition’s technical experts lowered their demand estimates on Tuesday.
But there’s still the potential for surprises at Thursday’s gathering of the 23-nation group, which is jointly led by Saudi Arabia and Russia. The possibility of increasing production is among the options that may be considered, according to two delegates who asked to speak anonymously.
Saudi Arabia could heed pressure from Russia and the United Arab Emirates, who appear more eager to restore production, according to Helima Croft, chief commodities strategist at RBC Capital Markets LLC.
“Surprises can take many forms and the Saudi oil minister might look to give way to the other producers that are pushing for a production increase,” Croft said.
Still, the coalition’s data point to the need for caution.
Officials from the OPEC+ Joint Technical Committee, which met on Tuesday, reduced their estimate for global oil demand growth this year to 5.6 million barrels a day, from 5.9 million previously. The adjustment was most pronounced from April to June, when on average consumption is now seen 1 million barrels a day lower than prior projections.
That implies that the cartel’s primary goal for the coming months — running down excess fuel inventories built up during the pandemic — would only happen slowly unless it agrees on Thursday to maintain production cuts close to current levels.
The OPEC+ alliance is withholding about 8 million barrels a day of production — roughly 8% of the global total — in order to disperse the surplus that built up when demand collapsed last year.
While they’ve committed to restoring some of that halted supply over the rest of the year, the producers have so far moved very carefully. At the start of March, the group stunned traders by rebuffing calls to open the taps as consumption was recovering.
The Joint Ministerial Monitoring Committee, which oversees the OPEC+ deal, concluded its talks without making any recommendations on output policy for May, delegates said. The discussion focused instead on compliance with production limits in prior months, they said. Countries with a back-log of unfinished cutbacks have been told to submit a plan for implementing these in time for Thursday’s meeting.
Oil fell after the talks on Wednesday, with Brent crude settling 0.9% lower at $63.54 a barrel in London.