The market outlook has become even more uncertain, but some members are growing impatient, write Bachar Halabi, Nader Itayim and Aydin Calik
Decision time is fast approaching for eight Opec+ producers that are due to begin a gradual unwinding of 2.2mn b/d of "voluntary" output cuts in April. Do they proceed as planned, or again delay, as they have done already three times before? While conviction among some delegate sources is growing that the time has come to finally begin the unwind, others feel a further delay is prudent, given that the uncertainties that triggered the earlier deferrals are still present and even compounded by measures the new US administration has taken or threatens to take.
When the eight members — Saudi Arabia, Russia, Iraq, Kuwait, the UAE, Algeria, Kazakhstan and Oman — in December agreed to delay the start to April, US president Donald Trump was not yet in office, nor had he made his call to the producer group to "bring down the cost of oil" — something it could achieve by raising output. Saudi energy minister Prince Abdulaziz bin Salman at the time said the decision was a "reality check" the group had to attend to, mainly because of a big divergence between market fundamentals and sentiment. He also hinted that the delay allowed for some breathing room to better understand what may happen in the US, China and the European economies.
Going ahead with the existing plan would send the right signals to the Trump administration, one Opec+ delegate tells Argus. But "ultimately, Opec+ will do what it feels is best for the market and the group itself".
Yet Trump is rapidly implementing policies that are complicating the situation for everyone, including Opec+. He this week said the US' imports from the EU could be subject to a 25pc tariff as early as 2 April. Additionally, Trump's plan to impose tariffs on energy and other imports from Canada and Mexico will take effect on 4 March. He is also threatening further tariffs on all imports from China.
With existing economic headwinds and a tariff spree on the horizon, the need for more oil comes into question. "Demand is not as expected," a second Opec delegate tells Argus. "A prolongation of the cuts is on the table." Seasonal refining maintenance in many regions begins in April and will cap demand for crude. For instance, China's largest crude importer, Sinopec, has a heavy maintenance schedule for April-May, removing up to 1mn b/d of crude processing capacity.
Simultaneously, the Trump administration has restored its "maximum pressure" policy campaign against Tehran. And although Iranian crude supply to China rebounded in February, Chinese port operators remain fearful of US sanctions policy that indicates that imports could become highly volatile. "I believe Opec+ will wait, and once the sanctions on Iranian oil take effect, the group will then take action," a third delegate says.
Testing patience
No clear consensus is apparent within the group, but patience is running thin among some producers. "Voluntary cuts are called voluntary for a reason, and have to end at some point," another delegate says. "We need to bring back those minimal barrels and see how markets react," they say, referring to the near 137,000 b/d or so that would be returned monthly under the plan.
This view is supported firstly by the hope that monthly Opec+ supply increments could be partly offset by some members' stricter adherence to output compensation plans. Secondly, in some Opec+ members' view, a not-so-promising demand growth outlook for 2026 and 2027 should trigger them to return some barrels now instead of waiting. "The impact might be more psychological than fundamental," the first source says. But, with some in the group unable to bear crude prices below $70/bl to balance their budgets, Opec+ will again need to apply a combination of unity and flexibility in trying to manage the market.
