OPEC and its allies agreed to extend crude oil production cuts into April, giving small exemptions to Russia and Kazakhstan, following a videoconference of OPEC+ countries where the group concluded that demand recovery was still fragile due to the continuing global pandemic.
Saudi Arabia will extend its voluntary oil production cuts of 1 million B/D by one month into April.
The news pushed oil prices back toward their highest levels in more than a year with Brent trading up 4% above $66/bbl. West Texas Intermediate gained 3.5% to over $63/bbl.
The meeting lasted less than 2 hours, according to Saudi Energy Minister Prince Abdulaziz bin Salman.
“We need to be diligent and careful and introduce these barrels in a phased-in approach,” said Bin Salman. “I don’t care about prices. I care about discipline. The only thing certain today is uncertainty.”
Pundits expected the meeting to result in small increases in production as more signs point toward demand recovery during the second half of the year due in part to increased coronavirus vaccination rollouts worldwide.
“Contrary to what most market participants expected before the OPEC+ meeting, initial reports show that a bullish momentum formed in today’s negotiations,” said Bjornar Tonhaugen, Rystad Energy’s head of oil markets. “Although oil prices are making members itch to open their taps again and bring in some extra cash, most members are showing surprising restraint and are happy to extend the existing production cuts for a month or two.”
When pressed by the media on when Saudi Arabia would bring its barrels back into the marketplace as forecasts expect demand growth later this year, Bin Salman was adamant that caution was key.
“You’re talking about the future,” he said. “It is all about modeling. I just have to wait for these things to become a reality. My motto these days is I’ll believe it when I see it.”
Russia will be allowed to raise production by 130,000 B/D in April and Kazakhstan by another 20,000 B/D.
Russia had pushed for production increases to help avoid price spikes that could help support shale-oil output from the US, which is not part of OPEC+.
A harsh Russian winter also has complicated the country’s ability to increase crude output. Russian Deputy Prime Minister Alexander Novak said Moscow needs extra barrels to meet recovering demand at home.
