OPEC+ is poised to cool down oil market

OPEC+ is poised to agree to a production increase this week as it seeks to cool a rapid rally in crude prices.

There’s a widespread view within the group that the market can absorb additional barrels, according to people familiar with the deliberations. While the usual differences are present — with Saudi Arabia cautious and Russia keen to open the taps — all sides are ready to increase production, they said, asking not to be named because the information was private.

That could put the group on to implement the majority of the 1.5 million barrel-a-day output increase that’s up for debate on Thursday.

An agreement to hike OPEC+ supply would be the latest sign that the global economy is recovering from the damage wrought by the coronavirus pandemic. The cartel has endured a year of pain, dominated by the deepest output cuts in its history. But the sacrifice has paid off, reviving oil prices back to pre-crisis levels above $60 a barrel.

“Both the global economic outlook and oil market prospects show signs of continued improvement,” OPEC Secretary-General Mohammad Barkindo said at the opening of a meeting of the group’s technical experts on Tuesday.

Brent crude fell in London for a fourth-straight session on Tuesday, dropping 1.6 percent to $62.70 a barrel. The global oil benchmark was still more than 20 percent higher for the year.

There are two distinct elements to the production increase that the Organization of Petroleum Exporting Countries and it allies will debate this week.

First, will the cartel proceed with a 500,000 barrel-a-day coltrack lective output hike in April? Second, how will Saudi Arabia phase out the extra supply reduction of 1 million barrels a day it’s been making voluntarily in February and March?

Russia has been the most consistent advocate for the 500,000 barrel-a-day increase, and other members now largely agree that it should go ahead, according to people familiar with the matter.

The top oil executive from the United Arab Emirates, which has also supported output hikes at recent OPEC+ meetings, gave a bullish assessment of the market on Tuesday.

“Oil demand is robust,” Sultan Al Jaber, the chief executive officer of Abu Dhabi National Oil Co., said at the IHS Markit Ltd. CERAWeek virtual conference. “Demand will rise to above pre-COVID levels by the end of this year.”

Adnoc has already signaled it’s preparing to open the taps, allocating customers greater volumes of Murban, Das and Upper Zakum crudes for April compared with March.

Saudi Arabia always said that its voluntary supply reduction would only last for two months, but OPEC-watchers have suggested Riyadh could phase it out gradually.