OPEC and its allies are expected to continue their planned recovery in oil production when they meet next week, as prices rebound from their August drop.
The Saudi-Russian-led coalition is gradually restoring the large amount of crude production interrupted during the pandemic and will likely ratify the next monthly installment when it meets on September 1, according to a Bloomberg survey of traders and companies. analysts. Several OPEC + delegates privately predict the same outcome.
Crude markets weakened earlier this month as the resurgence of the pandemic threatened demand in China and the United States.
“Uncertainties about the global economy and the resumption of growth in China have largely dissipated,” said Ed Morse, head of commodities research at Citigroup Inc. “There is good evidence that the price bottom oil was temporary and overdone, and if the recovery continued, OPEC + would likely stick to the plan.
The cartel has already restarted around 45% of the unprecedented production volume closed last spring. Under a plan led by Saudi Energy Minister Prince Abdulaziz bin Salman, OPEC + will return the remainder in monthly increments of 400,000 barrels per day until the end of 2022.
Seventeen of 22 traders, analysts and refiners polled by Bloomberg did not expect any change to that timeline at Wednesday’s meeting, which means October’s hike will go as planned.
The cautious management of the oil market by the OPEC + coalition has kept prices high enough to support the revival of the global oil industry and largely avoided the type of spike that could threaten the global economic recovery.
However, the group is still under pressure from all sides.
Earlier this month, its plans to increase supply were called into question. International crude prices fell by around US $ 11 a barrel – around 15% – in the first three weeks of August as China reimposed the lockdowns. The International Energy Agency, a prominent forecaster, cut its demand outlook for the remainder of the year and warned of a new surplus in 2022.
To the surprise of many OPEC watchers, the group also found itself pulled in the other direction as the White House publicly urged it to restart production faster in order to cool high gasoline prices. . Still, several OPEC + countries said they had not heard of a direct request, and analysts concluded President Joe Biden’s message was aimed at a national audience.
“I think they’ll send Biden’s call for extra barrels straight to voicemail,” said Helima Croft, chief commodities strategist at RBC Capital Markets.
A ROBUST DEMAND
OPEC + has caught observers on the wrong foot several times this year, freezing supplies when an increase was anticipated and vice versa. But so far this meeting is set to be a smoother affair than the last, keeping the OPEC + alliance of 23 countries on course.
The group does not face the looming prospect of a renewal of supplies from Iran, as talks to lift US sanctions have stalled. And demand for oil appears robust enough to absorb the extra barrels.
Traffic on China’s generally busy streets appears to be picking up as the main crude importing country cancels a resurgence in COVID-19 cases. In the United States, gas mileage is holding up as drivers try to make the most of the summer vacation season. The plane is even making a return to India as people flock to tourist sites after months of lockdown.
Brent crude futures, an international benchmark, rebounded to US $ 72 a barrel, giving crumbling oil producers some breathing room.
“As long as the Chinese government appears to have the latest COVID outbreak under control, I think it stays with the current plan and reiterates its ability and willingness to adapt as needed,” Croft said.