BAKU, Azerbaijan, Jan.9
By Leman Zeynalova – Trend:
Saudi cuts will keep the oil market in a deficit during the first quarter, Trend reports citing UK-based Capital Economics research and consulting company.
The main event in oil markets this week was the meeting of OPEC+. After much dispute, the group announced small increases in production quotas for Russia and Kazakhstan in February and March 2021, but left quotas for other members unchanged. However, this was overshadowed by Saudi Arabia’s pledge to voluntarily cut output by 1m bpd in the next two months, which lifted the price of Brent close to $55 per barrel. As a result, OPEC production should fall in Q1, albeit not to the levels reached last summer.
The Saudi Energy Minister justified the cut on the grounds that the near-term oil demand outlook remains very downbeat due to COVID-19 containment measures. Indeed, data released by the EIA this week suggest that restrictions on activity are taking their toll on product demand in the US. In any case, we expect that Saudi cuts will keep the oil market in a deficit during the first quarter, which should support prices until demand rebounds later this year.
OPEC+ agreed to lift oil production by 75,000 barrels per day over January levels.
But Saudi Arabia’s late announcement after the meeting sent oil prices soaring—that Saudi Arabia would voluntarily cut an additional 1 million barrels per day in February and March above its current quota—all while OPEC’s allies get to ramp up production.
The OPEC+ agreed not only for the production levels for February but for March as well. March’s production level will see an additional increase of 120,000 barrels per day over February levels, or 195,000 bpd over January levels.
With March’s production quotas already set, the February meeting, therefore, will set production quotas for April. The previous meeting held in December adjusted the total production cuts to 7.2 million bpd for January, from 7.7 million bpd before.
Follow the author on Twitter: @Lyaman_Zeyn