Opec and Russia decided against unleashing a flood of crude on to the market after Saudi Arabia urged fellow oil producers to “keep our powder dry” in the face of persistent uncertainty linked to the pandemic.
The careful approach to April production sent oil prices up more than 5 per cent, with Brent crude above $67.30 a barrel — near the highest level since January 2020, when coronavirus had only just begun spreading across the world.
Prince Abdulaziz bin Salman, the kingdom’s oil minister and son of King Salman, said on Thursday that while there was “no doubt” the market had improved since January, he wanted to “urge caution and vigilance”.
“Let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train,” he said, as a meeting of oil ministers began. “The right course of action now is to keep our powder dry, and to have contingencies in reserve to ensure against any unforeseen outcomes.”
After the meeting he added that he favoured taking a prudent approach: “When you have this unpredictability and uncertainty [I believe in] taking things in a more precautionary way.”
Supply curbs by Saudi Arabia-led Opec, Russia and other countries helped the market rebalance after an oil collapse last year to an 18-year low, as the pandemic raged and cut crude demand.
Record supply cuts of almost 10m barrels a day agreed last April, together with a slower unwinding of these cuts — to about 7m b/d so far — has kept oil prices in check in recent months.
The Opec+ group decided on Thursday against a collective 500,000 b/d increase in supplies, even as Russia and Kazakhstan have been allowed a small production raise of 150,000 b/d together for April.
Saudi Arabia will also maintain its own voluntary extra cut of 1m b/d for another month. These barrels will be brought back to the market gradually, the kingdom said.
“Contrary to what most market participants expected before the Opec+ meeting . . . a bullish momentum formed in today’s negotiations,” said Bjornar Tonhaugen at Rystad Energy.
“Although oil prices are making members itch to open their taps again and bring in some extra cash, most members are showing surprising restraint”.
Travel bans and government lockdowns to combat the spread of coronavirus hit demand for oil dramatically last year and forced global producers to take collective action to bolster prices.
Optimism about the rollout of vaccines around the world has helped crude prices recover above $60 a barrel. Some analysts now say that strict supply restraint will only send prices far higher and pave the way for more US shale production.
Prince Abdulaziz was not convinced, saying the “drill baby, drill” ethos among US companies “is gone forever”.
Yet economies dependent on revenues from crude sales to fill government coffers have been wary of taking too bullish an approach in the face of uncertainty and releasing too much oil.
Russia, Saudi Arabia’s main partner in the Opec+ oil alliance, has sought to raise production faster than the kingdom has wanted, to meet fuel demand at home and on concerns about handing over market share to rivals.
“Certainly, the Russians want more oil out there,” said one Opec delegate. “They’ve maintained this position for some time.”
Alexander Novak, Russia’s deputy prime minister, said earlier in the day that, while the new strains of coronavirus presented a big “uncertainty”, the oil market was “in much better shape”.