Saudis Single Handedly Help Brent Break $55
Saudi Arabia single handedly helped Brent rise to a fresh new record and break the $55 per barrel mark, according to Rystad Energy’s senior oil markets analyst Paola Rodriguez Masiu.
In a statement sent to Rigzone on Friday, Masiu noted that the price level had not been seen since February 2020, “when airplanes were still in the sky and the coronavirus was still ‘novel’”.
Masiu said Rystad Energy’s balances confirmed the market optimism last week and outlined that, with the latest cut in Saudi production and the expected higher compliance from the OPEC block, the company sees inventories exhibiting continuous draws in crude stocks for nearly every month this year.
“Stock draws is exactly what Riyadh is after,” Masiu said in the statement.
“An extra one million barrels per day in cuts will go a long way in reducing excess crude and products inventories in 1Q21, even as countries are again locking down,” the Rystad Energy representative added.
“In addition, the extra supply breathing space will help bridge any hiccups in the vaccination roll-out process,” Masiu continued.
Masiu noted that monthly meetings and surprises from OPEC+ make the future harder to predict but added that Rystad Energy believes this is a tool the group will continue to use to its full advantage this year.
“If OPEC+ were to revert to its previous higher target from April onwards, our balances would suggest a balanced crude market based on a gradual ramp-up to the previous target of 36.3 million barrels per day plus compliance slippage in the 200,000 barrel per day to 300,000 barrel per day range,” Masiu said.
“OPEC+ knows that should market conditions allow, the group could easily ramp up by two million barrels per day and still keep the market balanced,” Masiu added.
“However, this would go against the previously stated policy of a gradual ramp-up that called for limiting monthly increases to 500,000 barrels per day per month, the validity of which for now remains a question mark,” Masiu added.
In the statement sent to Rigzone, Masiu highlighted that there is still a lot of unknowns about the deal.
“Usually, Saudi Arabia is good on their word, so we expect them to deliver the promised cut, but at the same time, there has been no official mention in OPEC+ communications or signature on a dotted line,” Masiu said.
“Another very big unknown is exactly what back-door deals were struck to secure such a gift – promises of better compliance, regional stability, or other political concessions,” Masiu added.
“One million barrels per day worth of oil for a two month period is not just spare change, and besides a higher price, we wonder what Saudi Arabia is getting besides just political goodwill,” Masiu continued.
The Rystad Energy representative went on to warn that, despite widespread optimism, the market remains in a fragile state as Covid-19 continues to spread with a speed that triggered a call from the World Health Organization to implement stricter measures around the world.
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