Oil Market in Happy Hour
If there’s one way to describe what Saudi Arabia’s voluntary one million barrel per day production cut means for the oil market, ‘happy hour’ is a pretty fitting term.
That’s according to Rystad Energy’s head of oil markets, Bjornar Tonhaugen, who added that, if the move is realized, it not only offers a “soft pillow” for the sector, but also “a full set of blankets, bed covers and most likely the bed itself”.
Tonhaugen outlined that the surprise cut would definitely help prices level up but warned that it remains to be seen if Saudi Arabia will follow suit to its promise and cut by as much as it says as more projections and market events arise in coming weeks.
“It’s difficult to see how a beast of a one million barrel per day cut is justified behind closed Saudi strategist doors,” Tonhaugen said in a statement sent to Rigzone following the conclusion of the latest OPEC+ meeting.
“A non-on-the-paper promise is always lacking a signature. A one million barrel per day cut is a deep and painful production curtailment,” he added.
The Rystad Energy representative went on to say that Saudi Arabi’s offer to cut so much from the market suggests that the country is seeing demand really threatened in the short-term and wants to protect prices as much as it can, especially at a time when tensions are flaring again in the region.
The 13th OPEC and non-OPEC Ministerial Meeting, which was held via videoconference, concluded on January 5 after initially starting on January 4. It pointed out that rising infections, the return of stricter lockdown measures and growing uncertainties have resulted in a more fragile economic recovery that is expected to carry over into 2021.
While the meeting recognized that market sentiment has been buoyed recently by vaccine programs and improved asset markets, it underscored the need for caution due to prevailing weak demand and poor refining margins, the high stock overhang and other underlying uncertainties.
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