OPEC+ SURPRISES MARKETS: MAINTAINING TIGHT OUTPUT RESTRCITIONS FOR AT LEAST ANOTHER MONTH

OPEC+ SURPRISES MARKETS: MAINTAINING TIGHT OUTPUT RESTRCITIONS FOR AT LEAST ANOTHER MONTH

The results of recent analysis by Bloomberg analysis, show that over the past month, OPEC+ output has fallen by an average of 920,000 barrels per day; the steepest rate of reduction over the past eight months.

This provided the backdrop for the latest OPEC+ meeting on Thursday last week, which surprised global energy markets by announcing that output restrictions would remain unchanged for the month of April.  The announcement was contrary to previous market speculation that the OPEC+ members would use the opportunity of above-$60 prices to start to ease restrictions – perhaps increasing production by as much as 1.5 million barrels per day.  The surprise outcome triggered an immediate market bounce with the price of Brent crude rising by 5% close to the key $70 mark.

It should be noted that, as oil prices have continued to edge upwards, Gulf oil exports have also increased over the past month, despite the undertakings within the latest OPEC+ agreement to maintain tight Gulf supply as a means of price support.

However, despite the immediate market positivity to the OPEC+ announcement, and signs that Saudi caution has once again prevailed, there is also growing concern that this news will re-open the door to North America’s producers, for whom the key $60 per barrel level is widely regarded as the boundary between profitability and loss.  Accordingly, with oil prices seemingly secured well above the profitability line, and perhaps heading back towards $70, it seems certain that pressure will now grow for OPEC+ to take its foot off the output brake from May onwards.  

Not only is this likely to see a rise of output by 500,000 per day across the OPEC+ producing nations, but it is also likely to increase speculation that Riyadh will start to become impatient to relax its self-imposed additional 1 million barrel-per-day restriction.  While no-one will expect a sudden surge of an additional 1,500,000 barrels of output to snuff out the carefully shepherded market recovery over the past year, there will be plenty of speculation as to whether Saudi will keep its deeper, self-imposed reductions in place or whether it now believes it can risk a measure of relaxation.