OPEC+ Could Add 1.3MM Bpd and Keep Market Balanced
Rystad Energy’s latest analysis indicates that OPEC+ could raise production by 1.3 million barrels per day (MMbpd) in April and keep the market balanced.
The company does not see this level of production increase as a likely outcome, however, according to Rystad’s head of oil markets, Bjornar Tonhaugen, who outlined that Rystad believes OPEC+ will stick to its previous deal to not increase production by more than 500,000 barrels per day (bpd) on a monthly basis.
“We also expect Saudi Arabia to gradually bring back its extra one million barrels per day in cuts, which are not officially part of the agreement,” Tonhaugen said in a statement sent to Rigzone on Tuesday.
“Later in 2021, Saudi Arabia may slightly cut back on production volumes in order to accommodate increasing Iranian supplies towards year-end,” he added.
In the statement, Tonhaugen noted that current oil price levels are “more than healthy” and have already triggered increased oil production activity across the Atlantic in the Americas.
“OPEC+ reasonably will not want to miss out and not taste the cake it baked itself with hard work,” he said. “Many members of the alliance believe that it’s about time they enjoy the fruit of their restraint and raise oil output,” Tonhaugen added.
The Rystad representative predicted that, if OPEC+ decides to lift output by 500,000 bpd, even though prices will reflect the development, the effect will be “marginal”.
“A larger production boost by OPEC+ though could trigger a deeper decline in oil prices. However, since they are already topping $60, it won’t really be such a terrible blow. Profitability remains even below that threshold anyway, at above $50,” Tonhaugen stated.
Looking closer at Saudi Arabia’s extra million barrel per day cuts, Tonhaugen warned that, even if OPEC+ decides a modest output hike from April, if Saudi Arabia brings back those extra million barrels the impact will be “quite massive”.
“Oil prices rose by several dollars when the Saudis announced their surprise decision to remove that production two months ago and these extra dollars can be cut back if that soft pillow is suddenly lost,” he said.
“Unexpected policy changes of that magnitude entail the risk of large market reactions, so in the coming OPEC+ meeting the Saudi decision could weigh even more in importance than the group policy,” Tonhaugen continued.
OPEC+ is scheduled to meet via videoconference on March 4. OPEC+’s last meeting in January acknowledged the need to gradually return two million bpd to the market, “with the pace being determined according to market conditions”. It also reconfirmed the decision made at the previous meeting to increase production by 500,000 bpd starting in January 2021 and adjusting the production reduction from 7.7 MMbpd to 7.2 MMbpd.
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