By OPEC+ is expected to extend its production cuts for another month when the group meets Thursday, as demand faces the opposing forces of new Covid-19 lockdowns in Europe while the U.S. economic reopening accelerates. Oil prices fell.
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The Organization of the Petroleum Exporting Countries and top nonmembers like Russia have been meeting monthly to determine output quotas.
In March, the group surprised oil markets by continuing most of the current cuts, including Saudi Arabia’s earlier decision to curb 1 million barrels per day of its own output.
Oil prices have risen to over $60 per barrel since the meeting. But renewed restrictions in Europe as vaccine distribution fumbles have hit oil demand estimates. Before Thursday’s meeting, OPEC+ lowered its 2021 oil demand growth forecast by 300,000 bpd, according to a Reuters report.
Sources also told Reuters that Saudi Arabia, the de facto leader of the cartel, supports production cut extensions at their current rates, including its unilateral 1 million bpd, for another month.
“They don’t see demand as yet strong enough and want to prevent prices from falling,” the source said.
The group allowed Russia in March to boost production by 130,000 bpd for “continued seasonal consumption patterns.”
Moscow could push for another slight increase as it eases coronavirus restrictions. But most analysts see the current cuts largely staying put.
“The broad expectation is that OPEC will keep production cuts in place, especially after the whipsaw action in oil prices over the past week,” wrote Oanda market analyst Sophie Griffiths in a note Wednesday. “The large swings that characterized last week’s trading indicate oil is still extremely vulnerable to both bullish and bearish stimuli.”
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U.S. crude oil prices reversed lower to dip 0.1% to $60.50 per barrel, as Brent futures eased 0.5% to $63.80.
Exxon Mobil (XOM) shares fell 1.1% to 56.09 on the stock market today. Chevron (CVX) was off 0.9% to 104.95, BP (BP) fell 1.6% and Royal Dutch Shell‘s (RDSA) U.S.-listed stock was down 1.5%.
While Europe locks down again, the Covid-19 vaccine rollout is picking up speed in America, a bullish sign for U.S. demand and oil prices.
On Wednesday, the Energy Information Administration reported a 900,000-barrel drop in U.S. crude inventories, the first decline in six weeks. Analysts polled by S&P Global Platts were expecting a 200,000-barrel increase. Gasoline stockpiles fell by 1.7 million barrels vs. the 1-million-barrel increase analysts were expecting.
Americans are hoping for a somewhat normal summer of travel within the U.S. and many employers are eyeing a return to offices in the early fall.
“If the Saudis decide to add to their voluntary 1-million-barrel-a-day production cut, it could create an undersupplied market this summer,” wrote Phil Flynn, senior market analyst for the Price Futures Group in a note Wednesday.
But new Covid-19 infections are again on the rise in the U.S. as a more contagious variant spreads while younger Americans wait their turn for the vaccine.
Follow Gillian Rich on Twitter for energy news and more.
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