Opec+ leaning toward rollover with demand still fragile

Opec+ ministers look likely to agree a rollover of production cuts at least into May when they meet tomorrow, delegates say, with a still very uncertain demand outlook compounded by a new wave of Covid-19 infections in many parts of the world.

Critically, the question of how Saudi Arabia decides to proceed with its additional voluntary 1mn b/d cut beyond April is unclear and is likely to hang over the meeting.

Deliberations began yesterday at the group's Joint Technical Committee (JTC) meeting, which typically examines market conditions and sets the tone for discussions that follow. The Joint Ministerial Monitoring Committee (JMMC) meets at 16:30 Vienna time today, and Opec+ ministers assemble tomorrow.

The JTC highlighted the still-fragile nature of the market and pointed to renewed demand uncertainties brought on by what is being dubbed a third wave of the Covid-19 pandemic in some regions of the world, a delegate said. Europe, in particular, is experiencing a surge in infections, prompting several of its biggest economies to impose new restrictions.

Front-month Ice Brent crude futures have fallen by around $5/bl since they passed $70/bl for the first time in more than a year on 8 March.

"While last month saw many positive developments, it also witnessed reminders of the ongoing uncertainties and fragilities caused by the Covid-19 pandemic," Opec secretary general Mohamed Barkindo told delegates yesterday, emphasizing "the need to remain very cautious and attentive to changing market conditions."

The Opec secretariat has revised its oil demand growth estimate for 2021 to 5.6mn b/d, according to two delegates, down by 290,000 b/d from the 5.89mn b/d that it projected in its most recent Monthly Oil Market Report (MOMR) just three weeks ago.

An Opec+ delegate told Argus prior to the JTC meeting that given the current circumstances, "the mood is absolutely to rollover." Another described a rollover into May as "the most likely scenario."

Curveballs

But there is an expectation among some delegates that Russia, and possibly Kazakhstan, could again be afforded exemptions to allow for an output increase to meet higher domestic demand. The two have been allowed to raise their collective quota by 75,000 b/d in February, 75,000 b/d in March, and 150,000 b/d in April. All others in the Opec+ group maintained their ceilings at January levels.

This has taken Russia's and Kazakhstan's respective quotas to within touching distance of where they would have been had Opec+ stuck to its plan to bring around 2mn b/d back onto the market in January, rather than the 500,000 b/d it brought on.

One key question is whether Saudi Arabia will opt to stick with its additional, voluntary 1mn b/d cut beyond April or begin to phase it back from May. Saudi energy minister Prince Abdulaziz bin Salman has kept his cards close to his chest, saying only that any return would be gradual and at a time of Riyadh's choosing.

"We are not in a hurry to bring it back," he said after the JMMC meeting on 4 March. "We are not fast, or furious. We are cautious."

Delegates say the Saudis have not given any hints as to their plans. Given their very cautious approach to market management, a decision to begin unwinding the cut from May would be a surprise.

By Nader Itayim, Rowena Edwards and Ruxandra Iordache