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OPEC+ to ease output curbs in May

GLOBAL THE OPEC oil cartel and its allies have agreed
to ease production cuts in May following their
monthly meeting, with 350,000 barrels per day
(bpd) of supply set to return next month.
A further 350,000 bpd will be restored in June
and around 400,000 bpd in July. Saudi Arabia is
expected to return a further 250,000 bpd of oil
to the market next month, having made a volun-
tary 1mn bpd cut earlier this year.
Under the new agreement, OPEC+ will
produce 6.5mn bpd less oil than the baseline
in May, versus 7mn bpd currently. The group
agreed to take an unprecedented 9.7mn bpd of
supply offline this time last year in response to
the oil price collapse triggered by the coronavi-
rus (COVID-19) pandemic.
OPEC+ member Kazakhstan has said it will
produce more oil in May and June, but has not
disclosed numbers. Russian Deputy Prime
Minister Alexander Novak meanwhile told the
Rossiya-24 TV channel that his country would
increase oil production by a total of 114,000 bpd
across the three-month period.
However, with coronavirus case numbers
once again on the rise in Europe and other
regions, Saudi Energy Minister Prince Abdu-
laziz bin Salman warned that any decision could
be “tweaked” in OPEC+’s meeting next month.
“The reality remains that the global picture is hiccups to be a distance memory, and for many
far from even, and the recovery is far from com- developing countries to be nearing 50% vac-
plete,” the minister said ahead of the meeting. cination rates,” Dickson continued. “Thus, we
The oil price recovery that began in late 2020 still expect end-user demand to pick up over
began to falter in March, indicating that fuel the summer as economies open, and in line with
demand is not picking up again as fast as pro- seasonal demand.”
ducers might have anticipated. Still, Brent has Extra supply and rising demand should push
remained above $60 per barrel, feeding into implied stocks to a nearly 3mn bpd deficit by
bullish sentiment about the outlook for the rest August, according to Rystad.
of the year. Wood Mackenzie said the deal aligned with
“Today, there are figures that are much more its analysis for the second and third quarters of
Extra supply and positive concerning the market, including the 2021.
“We see the supply and demand balance
level of stocks, which have considerably fallen as
rising demand demand increases,” Russia’s Novak said. “Vacci- tightening in both quarters with global stock
should push nation is already yielding positive results so that draws in each,” Wood Mackenzie vice-president
demand is recovering.”
Ann-Louise Hittle said. “The agreement is sup-
implied stocks to Analysis portive of oil prices, yet should also help avoid
a sharp spike upward as oil demand picks up.”
a nearly 3mn bpd “The decision by OPEC+ shows that patience Wood Mackenzie anticipates a strong recov-
was exhausted among producers, who could not ery in US oil demand by the third quarter, with
deficit by August, accept that some countries – mainly Russia – global demand rising 6.2mn bpd year on year

according to were allowed to constantly hike their production in 2021.
Negotiations between OPEC+’s lead mem-
while others kept it flat,” Rystad analyst Louise
Rystad. Dickson said. “The outcome of the meeting is bers Russia and Saudi Arabia going forward are
also revealing that even though the group’s own likely to play out in similar fashion as they have
experts warned about the lagging oil demand done.
recovery and the market risks that the extended Saudi Arabia will push for more restraint, as
lockdowns are bringing, decision-makers have its economy and state budget are far more reliant
another vision.” on oil revenues, with the kingdom’s fiscal break-
Rystad said the market was set to be balanced even point estimated at $76 per barrel in 2020.
in May, with heavy maintenance taking place Russia, meanwhile, needs only just over $40 per
across several countries and the delay to the barrel to balance the books over the coming
Luanda refinery expansion in Angola. years, and will therefore be better positioned to
“By mid-summer, we expect the vaccine play hard ball in talks.™

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