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The global oil market is recovering faster than anticipated, but producers aren’t returning to business as usual.
The 13 member nations of the Organization of the Petroleum Exporting Countries and their allies—that together are known as OPEC+ and control approximately half of the world’s oil supply—agreed on March 4 to mostly maintain historic production cuts for April that were implemented last year to curb the crash in petroleum prices.
The agreement will ultimately keep roughly 8% of pre-pandemic supply, or 8 million barrels per day of crude production, off the market for another month, according to S&P Global Platts. Saudi Arabia said it will continue curtailing its voluntary cut of an extra 1 million barrels per day, while Russia and Kazakhstan will be allowed increased production capacity of 130,000 and 20,000 barrels per day, respectively.
The development delivered a blow to many market participants who hoped for an overall increase in output, and pushed crude prices higher. While some analysts anticipate that global oil demand will recover by year-end to pre-pandemic levels of 100 million barrels per day, other energy executives expect the second half of 2021 to provide the momentum needed for a full rebound by 2022.
OPEC+ delegates cited their concerns over the ongoing economic volatility spurred by the pandemic, alongside the effects of the uneven vaccine rollout and the potential for additional strict lockdown measures, as drivers of their decision to keep their grip on oil production tight, according to S&P Global Platts.
Leaders had urged caution over the outlook for the oil market and urged nations to practice restraint ahead of the discussions.
“We must emphasize in strong terms: cautious optimism, cautious optimism, cautious optimism,” OPEC Secretary General Mohammed Barkindo said on March 2, projecting global oil demand to grow by 5.8 million barrels per day in 2021, to reach 96 million barrels per day, according to S&P Global Platts. Pre-pandemic production capacity totaled roughly 100 million barrels per day.
At the onset of the talks, Saudi Energy Minister Prince Abdulaziz bin Salman acknowledged that “there is no doubt that the global oil market has improved since we last met in January,” but added that “before we take our next step forward, let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train.” He had urged the group to “have a contingency in reserve to ensure against any unforeseen outcomes.”
The path forward for petroleum producers will contain additional uncertainty brought on by geopolitical issues, including a potential thaw between the U.S. and Iran, and the energy transition that has pushed countries and companies alike to establish net-zero targets.
Today is Friday, March 5, 2021, and here is today’s essential intelligence.
Uncertainty in the Global Economy
Next Round of Stimulus…
Read More: Daily Update: March 5, 2021