Opec+ Caution Catches Oil Market on the Hop

The Opec+ oil cartel caught traders on the hop March 5 with a rollover of production cuts for another month or two, pushing prices up. Only Russia and Kazakhstan were allowed small increases, with Russia saying the extra was needed for internal use, not export.

The Brent crude May contract was trading at $68.60/barrel at press time, with share prices in the major producers US  ExxonMobil, Anglo-Dutch Shell and UK BP all up a few percent on the day.

Despite the price of Brent crude being back to pre-Covid-19 levels, Saudi Arabia agreed to postpone the comeback of its own voluntary extra 1mn barrels/day contribution, which was the biggest surprise, according to analysts at Rystad. The consultancy estimates stock draws will accelerate to over 1mn b/d in April, tightening the market. The biggest winner will be US producers, it said. Even its costly projects are now in the money.

Consultancy Wood Mackenzie also said stocks would be drawn by at least 1mn b/d from April. “The market was expecting a substantial increase because the tightening in the supply and demand balance is already evident," it said. “Oil prices have increased strongly in the last two months, with Brent hitting $65-$66/b. Prices are rising in anticipation of a recovery in demand and limited supply growth for 2021.”

The vaccination programme in the US, the world’s largest consumer, is ramping up, with the Biden administration promising enough for every adult by end-May, according to the consultancy. It forecasts global demand rising 6.3mn b/d year on year in 2021. If the group's production rate lasts another month, oil could rise toward $70-$75/b during April. It foresees nearly 14mn b/d year-on-year growth in the second quarter.