Saudi Arabia’s Minister of Energy Prince Abdulaziz Bin Salman called for caution as he opened an OPEC meeting on Thursday.
He warned all oil producers that crude’s recovery was “far from complete” with the pandemic still wreaking havoc globally.
“Until the evidence of the recovery is undeniable, we should maintain this cautious stance,” Prince Abdulaziz said.
He referred to the last OPEC+ meeting in which it was decided to continue with production cuts in order to bring stability back to the oil market.
“Last month we called for a cautious and restrained approach and fortunately we were proved right by subsequent events,” the Saudi minister said.
“The market now realizes that the OPEC+ cautious position was the correct course of action… The reality that remains (is the) global picture is far from even and the recovery is far from complete.”
However, Russia’s Deputy Prime Minister Alexander Novak called for easing the curbs on the production, saying the market has improved substantially as vaccines to combat coronavirus are rolled out and Opec+ has to ensure the market does not “overheat”.
“Consumer countries are also watching the actions of Opec+ carefully, with those such as India wary about producers keeping too tight a hold on output that will only propel a surge in prices,” Novak added.
Later in the day, the Opec+ oil alliance decided to increase output gradually from May as pressure mounts from inside and outside the group to release more barrels on to the market and keep crude prices in check.
According to the decision taken at the meeting, OPEC+ will now increase its target production by 350,000 bpd in May and June, and 400,0000 bpd in July.
Saudi Arabia also decided to increase production by 250,000 in May, 350,000 in June and 400,000 in July
The Kingdom earlier implemented a voluntary cut of its own of about 1m b/d to bolster the market.
A day before the OPEC+ meeting Prince Abdulaziz held talks via video-conferencing with the newly appointed US Secretary of Energy Jennifer Granholm on Wednesday.
Prince Abdulaziz congratulated his US counterpart on her recent confirmation as the energy secretary. During the video call, a wide range of topics of mutual interest in the energy sector were discussed, according to the Saudi Press Agency. It was agreed that Saudi Arabia and the United States would work closely to advance cooperation in these areas of mutual interest, commensurate with each of the countries’ energy ambitions and objectives.
Dismissing speculations over Saudi Arabia’s decision to gradually raise production was taken under US pressure.
“I can give you full assurance that oil market, oil prices…anything related to Opec, Opec+…was not even mentioned (on the Granholm call),” he added. He said the small increases were a “conservative measure” and “the cautiousness is still there”.
The most main and immediate takeaway is that a total of 600,000 bpd of crude oil is coming back in May, said Louise Dickson an oil market analyst associated with Rystad Energy, independent energy research and business intelligence company headquartered in Oslo, Norway.
A 600,000 bpd addition for May should be well received as a “hold steady” option. Though of course raising the target by 600,000 bpd means real production will be a bit higher than this guidance, and the same goes for the months that follow, according to Dickson.
The OPEC+ decision on Thursday deepens the crude draws for May and June, and we now expect an average of 750,000 bpd drawn in these months, Rystad Energy’s analyst noted.
For July, the outcome is a bit more bearish than expected, but we still foresee a healthy 800,000 bpd draw for the month.
The decision by OPEC+ shows that patience was exhausted among many producers, who could not accept that some countries — and mainly Russia — was allowed to constantly hike their production while others kept it flat.
The outcome of the meeting is also revealing that even though the group’s own experts warned about the lagging oil demand recovery and the market risks that the extended lockdowns are bringing, decision-makers have another vision.
Market politics and financials prevail in such meetings and theory is not always met with what would be considered a reasonable action to address the current market risk.