OPEC+ easing is bullish, but could tamp down market volatility
A decision by OPEC and its production allies to gradually put more crude oil barrels on the market could ease some of the recent market volatility, analysts said April 1.
Saudi Arabia and Russia lead a collective group that includes 10 non-member states in the so-called OPEC+ alliance. Ministers during a virtual meeting today opted to gradually relax on production restraint, adding 350,000 b/d to the market in both May and June and 400,000 b/d in July.
Ann-Louise Hittle, vice president of macro oils at consultancy Wood Mackenzie, added that Saudi Arabia also opted to gradually unwind its extra curtailment of 1mn b/d over the next three months.
“The agreement is supportive of oil prices, yet should also help avoid a sharp spike upward as oil demand picks up,” she said.
Crude oil prices saw wild swings ahead of the announcement, but eventually edged higher on expectations of a still-tight market. Brent crude oil, the global benchmark, was up 3.4% as of 1:45 pm ET, trading at $64.88/b.
Tamas Varga, an analyst at London oil broker PVM, told NGW the decision was met with renewed crude oil purchases, explaining today’s market reaction, because demand growth is expected to outpace the increase in OPEC+ production through July.
The price for Brent crude oil is up about 25% on the year on the general optimism that the economy would accelerate on the back of vaccination improvements. Abhi Rajendran, the head of North American energy research at Energy Intelligence in Houston, said the market reaction was somewhat surprising, but it did support the growing sense of economic confidence.
“Adding supply will prevent overheating prices which is ultimately good. But more demand should come than supply so oil should still be well supported,” he said. “We still see $70/b average in the coming quarters.”