Page 6 - LatAmOil Week 10 2021

LatAmOil COMMENTARY LatAmOil

New OPEC+ agreement

largely maintains cuts

OPEC+ members have agreed to add only 150,000 bpd of output in April

OPEC and its partners in the OPEC+ group that OPEC+ would keep things as they were at
decided at last week’s meeting to largely main- the March meeting.
WHAT: tain the output cuts they committed to in Janu- With prices rising to around $70 per barrel
The group elected to ary in a move that took the market by surprise. following the announcement, the market is
keep the production cuts Aside from Russia and Kazakhstan, the enjoying stability it has not seen for more than
largely unchanged as it group will continue to limit output by the a year, both vindicating Prince Abdulaziz’s con-
seeks to maintain price same levels agreed at the start of the year, with servatism and the leadership that Saudi has
stability amid uncertainty
about the global econom- de-facto leader Saudi Arabia having pushed shown to right the ship. Speaking to Anadolu
ic recovery. hard for greater compliance and caution amid Agency last week, Ian Simm, principal advisor at
uncertainty about demand recovery. This means IGM Energy, said: “By continuing to restrain its
WHY: OPEC+ output will be restricted by around 7mn own domestic output by 1mn bpd, convincing
The anti-COVID-19 barrels per day (bpd) throughout April, plus other member countries to maintain the pro-
vaccine rollout has yet Saudi’s additional voluntary 1mn bpd cut. duction cuts largely as they are and encouraging
to gain much traction in Meanwhile, having already been allowed to improved compliance, Saudi Arabia’s leadership
Europe, and there are expand output by a combined 75,000 bpd dur- of the group and the global oil industry is as evi-
concerns about the out- ing each February and March, Kazakhstan and dent as ever.”
look for travel during the Russia will raise production by 20,000 bpd and While other members of the cartel appeared
northern hemisphere’s 130,000 bpd respectively, largely because of sea- desperate to benefit from higher prices, Riyadh’s
summer holiday season. sonal demand. interests are best served by growing demand and
long-term price stability anywhere north of $50.
WHAT NEXT: Against the grain As such, the Kingdom continues to portray itself
Saudi Arabia appears Prices have recovered sufficiently to bring as the guardian of the oil market and having now
unlikely to remove its vol-
untary 1mn bpd cut next greater confidence to producers about the medi- more than made up for the damage it caused by
month, with a gradual um-term outlook for the market, and with the engaging in a price war with Russia last year, this
approach far more likely. group’s members having seen their economies self-determined title is justified.
taking a battering over the past year, desire to
ramp up output to take advantage of higher Where to next?
prices was understandable. Attention now moves to the next OPEC+ meet-
However, since taking drastic action to rebal- ing at the end of March. While fundamentals
ance the market when it collapsed in early 2020 over the next few weeks will determine the
amid intentional oversupply and the corona- direction of decision-making, the current state
virus (COVID-19) related impact on demand, of the market suggests that a large-scale lifting of
Riyadh has pleaded for caution. Saudi Energy production is highly unlikely.
Minister Prince Abdulaziz bin Salman Al Saud Speaking to NewsBase this week, Simm said
has repeatedly voiced his concern about easing that with Saudi seeing the success of the policy
the restrictions, suggesting that it was not the on cuts, Riyadh is likely to continue lobbying
time to turn on the taps. Growing COVID-19 other members to maintain their restraint.
case numbers in Europe, in particular, were “Non-compliance by other members has
highlighted as providing sufficient concern for been the Kingdom’s main bone of contention
the group to remain nervy. over the last year or so. Having promised to do
Meanwhile, with the continent’s vaccine roll- a disproportionate amount of the heavy lifting
out having made a stuttering start, worries are through its 1mn bpd cut, Prince Abdulaziz et al
growing about the outlook for travel during the are in a strong position to demand better com-
summer holiday season. pliance from members with a history of lagging
Most traders and analysts had anticipated an behind,” he added.
increase of 500,000-1mn bpd after it emerged The hope in Riyadh will be that if it continues
that the group was discussing such a hike. In ret- showing restraint, it can encourage or enforce it
rospect, market watchers should perhaps have among others, with many in the industry wary
known better than to anticipate much move- of Saudi Arabia’s expanded spare capacity, which
ment. Indeed, Iraqi Oil Minister Ihsan Abdul assuming full compliance with its 1mn bpd cut,
Jabbar said in mid-February that he anticipated would be around 3mn bpd.

P6 www. NEWSBASE .com Week 10 11•March•2021