Last week’s OPEC meeting came and went without any trouble.
Most thought we’d see everyone agree on continuing the production cuts.
After all, we’ve been seeing some vaccine rollout problems, fears of new COVID strains, and rising cases in some places.
Not to mention the whole Suez Canal incident, which definitely threw a wrench in things.
And so, most thought OPEC would keep production where it is to continue supporting oil prices in case things take a turn for the worst.
Yet OPEC surprised us all this time.
You see, before the OPEC meeting, Saudi Arabia had implied that the cartel would roll over the cuts when it pushed to redo its demand projections for the rest of the year — projections it thought were too high.
If they were to lower their demand projections, well, OPEC countries would have to cut supply (production) accordingly to keep prices stable.
In addition, Saudi Arabia urged caution in the current market environment.
Sounds like they thought oil demand will not be as high as they anticipated — therefore, there may not be enough room (in terms of demand) for OPEC members to boost oil production.
But none of these proved true.
We shouldn’t be surprised, given pressure on the group — mostly from the United States and India — to produce more crude oil.
Saudi Arabia denied that their phone call with DC before the meeting affected the outcome.
However, they may be understating just how much influence the phone call had (I mean, I’d be embarrassed to admit another country influenced me to do something, too).
But anyway, the OPEC meeting on Thursday.
The meeting was brief. Saudia Arabia seemed sick of doing all the heavy lifting when it comes to production cuts. The country started things off by saying it would decide on what to do about its own production cuts only after the OPEC+ group had decided on he rest of them.
In other words, if the group decided to ramp up production, the Saudis would also ease up on its voluntary production cuts. They’d wait for someone else to take the lead.
Speaking of, Saudi Arabia never objected to gradual production increase suggestions. They actually pointed out that domestic demand would rise over the summer months and that OPEC may have to boost production.
During the talks, Nigeria, Angola, Oman, Bahrain, Brunei, and Kuwait were reportedly fine with rolling over production cuts.
Same with the UAE — at least for one more month of production cuts — but they wanted to see OPEC gradually ease cuts after that month. Azerbaijan was also in favor of a one-month rollover. Algeria upped the ante a bit with suggestions of a two-month rollover.
After negotiation and discussion, OPEC+ decided to increase overall production as follows:
- 350,000 bpd in May
- 350,000 bpd in June
- 441,000 bpd in July
As for Saudi Arabia’s own easing of its voluntary portion of the cuts:
- 250,000 bpd in May (for a total of 600,000 bpd)
- 350,000 bpd in June (for a total of 700,000 bpd)
- 400,000 bpd in July (for a total of 841,000)
This reflects what the Saudis were saying about increased demand in the summer.
Now, we can’t forget about the exempt members.
Iran (despite sanctions), Libya, and Venezuela all boosted production over the last month while the other countries didn’t. OPEC’s March production was up by 300,000 bpd because of this.
Among all these newsworthy events, OPECs overproducers (like Iraq and Kazakhstan) were allowed three more months to make up for their overproduction. Thus, big production cuts for them are coming right up.
Also, the market will be watching Saudi Arabia’s exports specifically — and even more particularly, their oil exports to the United States — to figure out how to react. After all, exports drive price and market balance.
However, if COVID cases continue to rise, I can’t see price going up in any form. More oil plus fewer people needing it due to COVID restrictions means price drops.
OPEC news like this is some of the most influential on the oil market for obvious reasons. Whenever OPEC speaks or meets, the market moves.
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