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OPEC + summit facing an equation with many unknowns

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OPEC + members meet by videoconference Thursday (2 p.m. in Switzerland) to decide on the next black gold production cuts. This summit, which brings together the 23 members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, united under the OPEC + banner, is the second of the year. The pace of meetings has accelerated in recent months, echoing the magnitude of the shock of the Covid-19 pandemic for oil producers.

The uncertain deal between Russia and Saudi Arabia

The key question: how will the two heavyweights, Russia and Saudi Arabia – respectively the second and third largest producers in the world behind the United States – coordinate in the face of a demand for black gold that is set to pick up again as the Covid-19 ebbs?

“Within the alliance there is a major difference of opinion on the capacity of the oil market to absorb new volumes” of crude, summarizes Bjarne Schieldrop, analyst at Seb. Riyadh “leans for caution” when Moscow “defends the increase in supply, he explains.

This difference in approach had been largely erased for almost a year since prices were so low, but the return to favor of prices to a level comparable to the period before the pandemic, around 65 dollars per barrel for the two references. European and American, is enough to accentuate the tensions.

Read also: The barrel of US crude crosses the 60 dollars mark

On Tuesday, OPEC Secretary General Mohammed Barkindo adopted an in-between by evoking an “optimistic but cautious” attitude on the sidelines of a technical meeting of the cartel.

A fragile market, the floodgates gradually opened

Because if the economic outlook is better, the speed of the recovery in demand remains subject to many uncertainties, including the success of vaccination campaigns which are in some places sluggish.

In its monthly report in mid-February, the International Energy Agency (IEA) ruled that the rebalancing of the oil market remained “fragile” at the start of the year and warned of the spread of new variants of the coronavirus.

At its last summit in January, the OPEC + alliance had agreed, after two days of tough negotiations, to gradually open the floodgates until March, thus carefully using its main power: playing the black gold tap to keep control of the balance between supply and demand.

On the subject: OPEC + will cautiously increase its production of black gold

Russia and Kazakhstan had obtained the sole responsibility of ensuring the gradual increase in the group’s production when Saudi Arabia surprised by reducing its own by an additional million barrels a day. In total, the alliance leaves 7.05 million barrels a day underground in March, cuts that remain very significant.

A summit with its share of expected twists and turns

The group would be tempted to continue its policy of gradually increasing production, agree many market observers, who evoke a quantity of 500,000 barrels per day reinjected in April, to which the return would be added in part, or even whole, of the million barrels daily withdrawn by Riyadh in February and March.

But consensus is never acquired within the alliance which had known at the same time last year, against the backdrop of the beginning of a pandemic, a melodrama opening on a short but intense price war.

Especially since there is no shortage of hot topics: in bulk the respect of quotas by each of the members, a pledge of the seriousness and credibility of the agreement, or American competition, which also benefits from the return to favor of prices.

Oil accelerates after US stocks

Oil prices advanced significantly on Wednesday, after a bout of weakness the day before, galvanized by a drop in gasoline reserves in the United States last week.

A barrel of North Sea Brent for May delivery rose 2.19% or $ 1.37 in London from Tuesday’s close to $ 64.07. WTI’s US barrel for April appreciated 2.56% or $ 1.53 to $ 61.28. The day before, the two benchmark contracts had given way, with WTI dropping below $ 60 a barrel for the first time since the start of last week.

Already on the rise at the start of the session, crude prices accelerated after the publication by the United States Energy Information Agency (EIA) of gasoline stocks falling by 13.6 million barrels in the United States last week. This volume marked the spirits enough to put aside the overall increase of 21.6 million barrels of crude stocks, the largest weekly increase since 1982, made public in the same report.

“These data are unlikely to paint a reliable picture given the massive production shutdowns in the oil fields and refineries of the Texas, caused by freezing weather two weeks ago“, Moderated Eugen Weinberg, analyst at Commerzbank.

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