- OPEC+ to roll back 85% of output cuts brought in since April 2020 over next 3 months; expectations were for no change
- But continuing monthly meeting schedule and phased increases suggests flexibility to reverse course quickly if needed
- So far oil price is up in reaction: only relief for importers is that the prospects of much higher prices has dimmed
OPEC+ announced on 1 April that is increasing oil supply contrary to expectations of continuing restraint (indeed the OPEC+ technical committee lowered its global estimate by 5% the day before). About 85% of the output cut implemented since April 2020 will be rolled back by the end of July 2021. So far, the oil price has reacted positively, up 2-3%.
Maintaining the monthly schedule of meetings, the next OPEC+ meeting is on 28 April, and increasing output in increments suggests that, should the demand outlook weaken, the strategy could be reversed quickly.
Nevertheless, assuming this output expansion plan and oil prices hold their ground, in emerging markets the decision is most positive for oil exporters desperate to increase output and balance their fiscal budgets (eg Saudi and the GCC, Colombia, Nigeria). The only relief for oil importers struggling with inflationary pressures driven by commodity price increases (eg India, Kenya, Pakistan, the Philippines among many others) is that the prospect of much higher oil prices appears to be off the table now.
Compared with current levels, OPEC+ is increasing oil output by 0.6mbpd in May, 1.3mbpd in June, and 2.2mbpd in July. This includes the phased roll-back of Saudi's unilateral 1mbpd cut in January. Driving the OPEC+ decision are the following factors:
Prospects of stronger demand from the US and China offsetting weakness in Europe;
Seventh consecutive month of falling global oil inventories;
Frustrations of those members not allowed to increase their production last month, unlike Russia and Kazakhstan; and, perhaps,
A nudge from the US Energy Secretary Jennifer Granholm in her call this week with Saudi Energy Minister Prince Abdulaziz bin Salman al-Saud (although this was denied by the latter).
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