OPEC+ likely to ease output cuts from April: analysts

The Organization of Petroleum Exporting Countries and its allies (OPEC+) are expected to keep production quotas unchanged in March, with a possible revision starting April, analysts told Argaam ahead of the oil producers’ meeting on March 4, 2021.

“Given the current level of Brent prices around $65 per barrel (bbl), they are likely to decide at their meeting to ease production quotas from April,” said Jean Claus, CEO Middle East at Euler Hermes.

Such a decision should halt the current rise in oil prices and stabilize them around $60/bbl – a level that should be acceptable to most OPEC+ members as higher oil production would help to boost gross domestic product (GDP) via an increase in output in the mining sector, providing a boost to economic recoveries in 2021, he added.

OPEC+ is currently holding back around 7 million barrels per day (bpd) from the market. In January, Saudi Arabia offered voluntary cuts to its oil production by an additional 1 million bpd in February and March.

In the upcoming meeting, the group will review the status of global oil markets, set future goals and decide on production limits.

Price forecast

“The prices rallied significantly, gaining more than 30%, since Saudi Arabia announced its voluntary cuts. This would give some room for producers to revive production,” said Shoaib Abedi, founder and CEO of international brokerage firm ICM.

An addition in supply could lead prices to correct, but not violate the general trend, he added.

Brent prices have already gained over 300% since the April 2020 bottom, but with a proper economic recovery, the price could hit $75 by year-end, he noted.

“Reintroducing more oil into the market should have a minimal impact on prices since demand is expected to increase in the coming months and vaccines continue to be distributed,” said Mike Narkiewicz, senior portfolio manager at State Street Global Advisors.

In case OPEC+ decides to ease supplies back into the market, it will also signal a level of comfort with price levels, said Han Tan, market analyst with FXTM. “Any breach of the $70/bbl psychological level for Brent futures by mid-year would be primarily driven by demand-side factors,” he added.

Claus expects that oil prices are likely to consolidate by the end of Q1 2021 and remain close to approximately $60/bbl through year-end.

“I think crude oil demand will rise sharply as the global economies re-open and travel re-starts. But this will be offset as OPEC supply is likely to rise proportionally. So, the net impact of this will be neutral on prices,” said Fawad Razaqzada, market analyst with Think Markets.

Write to Nadeshda Zareen at nadeshda.zareen@argaam.com