How Oil Prices reacted to OPEC meeting and Outlook
Oil futures jumped on Thursday, posting their highest finish since 2019 after OPEC and its OPEC+ allies decided to keep production unchanged through April. Saudi Arabia will extend its one million barrels per day voluntary production cut into April while Russia and Kazakhstan will be allowed to increase production by 130,000 and 20,000 barrels per day. Crude futures have soared to pre-virus levels in recent weeks, driven higher by substantial OPEC+ production cuts and the mass rollout of Covid-19 vaccines in many high-income countries.
How did oil price move?
The Organization of Petroleum Exporting Countries (OPEC), the 13-member group led by Saudi Arabia, effectively controls the price of the world’s most valuable commodity by tightening or loosening the oil tap.
International benchmark Brent Crude crude futures gained $2.68, or 4.15%, to trade at $66.73 per barrel, while U.S. benchmark West Texas Intermediate (WTI) crude futures advanced $2.49, or 4%, to trade at $63.78 per barrel.
Observers were expecting OPEC+ to reverse some of the output cuts it made last year. Ahead of the meeting, OPEC’s de facto leader Saudi Arabia publicly encouraged allied partners (OPEC+) to remain “extremely cautious” on production policy, warning the group against complacency as it seeks to ensure a full oil market recovery.
Non-OPEC leader Russia, meanwhile, had indicated that it wanted to push ahead with a supply increase, claiming last month that the market has already balanced.
Saudi Arabia understands that oil producers, such as Russia, Iran, and the United Arab Emirates, are willing to start pumping more oil into the market, but remains focused on bringing down global oil inventories to the industry’s five-year average and thus will push for the group to hold off on reversing cuts until May.
Here is a look back at oil markets crazy year, as compiled by Quartz
- March 2020: As the global economy freezes up, Saudi Arabia and Russia can’t agree on production cuts, and the price dips 30% overnight.
- April 12, 2020: OPEC+ members agree to a record cut of 9.7 million barrels per day through June, about 10% of global production.
- April 20, 2020: The price of oil goes briefly negative for the first and only time in history.
- June-July 2020: As OPEC’s production cuts sink in, the price rises, but stalls around $40. This is by OPEC design: The price is workable for members, but still too low for most US producers.
- July 15, 2020: OPEC agrees to roll back cuts through December to 7.7 million barrels per day.
- Nov. 9, 2020: Oil company stocks and the oil price jump after Pfizer announces successful trials of a Covid-19 vaccine.
- Dec. 3, 2020: OPEC+ members decide to bring an additional 500,000 barrels per day back into production through March. Saudi Arabia will ultimately backtrack, volunteering to cut 1 million barrels per day.
- Feb. 8, 2021: The oil price returns to pre-pandemic levels for the first time.
We can notice that OPEC+ initially agreed to cut oil production by a record of 9.7 million barrels per day last year, before easing cuts to 7.7 million and eventually 7.2 million from January. Since then, OPEC kingpin Saudi Arabia has taken additional voluntary cuts of 1 million from the beginning of February through March.
OPEC and OPEC+ meetings are often characterized by typically different views and interests. But Saudi Arabia remains the core force behind the market management strategy and is by far the most cautious out of all member states.
Still, it appears the member states understand the downside risks to the global economy caused by the Covid-19 pandemic, and that the unequal access to vaccines between rich and poor countries, may lead to an uneven recovery.
Analysts fear that Saudi Arabia could surprise the market by not returning its two-month unilateral cuts of 1 million barrels per day, which it is holding through February to March 2021 while OPEC+ is to increase production by between 1-1.5 million barrels per day in April 2021.
Analysts forecast that global demand will increase by 6.3 million barrels per day year on year in 2021. Brent crude prices will rise toward $70 to $75 during April, assuming that OPEC+ does not raise output that month, except for Russia and Kazakhstan.