Saudi, Russia strike cautious tone before Opec+ meeting

Saudi Arabia and Russia, the de facto heads of the Opec+ coalition, urged continued "caution and vigilance" ahead of today's group meeting, with a recent rally in oil prices taking them to more than 18-month highs.

"We have mitigated the impact of the last three waves of the pandemic by avoiding complacency," Saudi energy minister Prince Abdulaziz bin Salman said. "Before we take our next forward steps let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train. The right course of action now is to keep our powder dry, and to have contingencies in reserve to insure against any unforeseen outcomes."

Russia's deputy prime minister Alexander Novak struck a similarly cautious tone, highlighting the uncertainty of the pace of the spread of new Covid-19 strains. But, Novak noted positive factors relating to a pick up in the pace of vaccine campaigns.

"At the same time we understand that there has been a number of revisions by research agencies and global research houses in terms of their views of demand and supply," Novak said.

US bank Morgan Stanley recently estimated that the global oil market has been undersupplied by 2.8mn b/d in the first quarter, because of falling Covid-19 cases, a bottoming-out of mobility statistics and inventories being drawn. If sustained, this could be the most undersupplied quarter since 2000, the bank said as it raised its Brent crude price forecast for the second half of this year to $65-70/bl from $60/bl, with a $70/bl peak in the third quarter. It moved it forecast for the first half up to $60/bl, from $55/bl.

But, in its most recent Monthly Oil Market Report (MOMR), Opec cut its global oil demand growth forecasts for the year, and the IEA warned of a fragile outlook for demand recovery in January-June.

"These are all factors that need to be considered when we are weighing up the various options," Novak said.

The Opec+ alliance will discuss today whether and how to amend its production quotas from next month. These are at 7.05mn b/d below an October 2018 baseline this month, compared with 7.13mn b/d in February, excluding an extra voluntary cut from Saudi Arabia of 1mn b/d over February and March.

A delegate told Argus today that although there is a "brighter" demand picture and falling stocks, there are longer-term uncertainties relating to backwardation in Brent crude futures, with the possibility of production from the US, Libya and Iran returning. And Opec+ must consider the return of Saudi Arabia's 1mn b/d in April.

"What we should be discussing is should we rollover, or shall we increase gradually, but I do not see a scenario of cutting even more," the source said, adding that a gradual increase should be continuously monitored, requiring more frequent Opec+ meetings.

The alliance should sanction an increase of between 1mn b/d and 1.5mn b/d from April, including the return of Saudi output, two delegates previously told Argus.

By Rowena Edwards, Nader Itayim and Anastasia Krasinskaya