Saudis seek to hold reins on oil market

For months, Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, arguably the most powerful individual in the oil business, has urged fellow producers to keep a tight rein on output, fearing that additional crude could flood the world’s markets and cause prices to drop. At the same time, some producers, notably Russia, have been chafing to open the spigot a bit more.

On Thursday, the prince seemed to relent, as the group called OPEC Plus — the members of Organization of the Petroleum Exporting Countries and allies such as Russia — agreed to modest output increases over the next three months.

Analysts said the prince, who is the chair of OPEC Plus, appeared to be calculating that by appeasing other producers who want to produce more oil, he can remain in control over the longer term.

The prince repeated his go-slow message Thursday, arguing that the global economic recovery from the pandemic remained fragile, and so his willingness to sign off on an increase came as something of a surprise.

But the decision seemed to be an acknowledgment of the diversity of opinions within OPEC Plus, and that he must take the views of other key producers like Russia and the United Arab Emirates into account to maintain leadership and to keep them from going their own way.

“It is not my decision; it is everybody’s decision,” he said at a news conference after Thursday’s OPEC Plus meeting.

So far traders have signaled their approval by pushing up prices in what had been a weak market. On Friday, Brent crude, the international bench mark, was up about 3.4 percent to $64.86 a barrel.

Under the deal agreed to Thursday, OPEC Plus will gradually increase production by 350,000 barrels a day in May and June and 441,000 barrels a day in July. Over the same period, the Saudis will also relax the 1 million barrels a day they have been voluntarily keeping off the market, bringing the total increase to about 2.1 million barrels a day by July.

The plan “points to a still cautious and orderly rampup from OPEC Plus, still allowing for a tight oil market,” rather than a flood, analysts at Goldman Sachs wrote in a note to clients Thursday. OPEC Plus also retains the option of adjusting output at monthly meetings. Saudi Arabia, the world’s largest exporter, can also take unilateral decisions to trim supplies.

This ability to quickly backtrack “provides the prince with comfort that he is exercising a fairly lowrisk option,” said Helima Croft, a strategist at RBC Capital Markets, wrote in a note to clients.