The Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, announced Thursday that they will gradually raise production from May through July by easing the size of their earlier output reductions.
Saudi Arabia will also rollback its voluntary cuts during the three-month period.
“The agreement is supportive of oil prices, yet should also help avoid a sharp spike upward as oil demand picks up,” said Ann-Louise Hittle, Wood Mackenzie’s vice president, Macro Oils, in emailed commentary.
Wood Mackenzie forecasts a “strong recovery in oil demand by the third quarter for the U.S.” and expects total global oil demand to gain 6.2 million barrel per day year on year in 2021, she said.
During a press conference, Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman said OPEC+ will raise daily oil production by 350,000 barrels in May, 350,000 barrels in June and by 441,000 barrels in July.
OPEC+ was holding back roughly 8 million barrels a day of output, 1 million of which represented a voluntary cut by Saudi Arabia.
However, Prince Abdulaziz also said Saudi Arabia will gradually roll back that voluntary cut, which it announced at the January meeting. It will ease the per-day reduction by 250,000 barrels in May, by 350,000 barrels in June and by 400,000 barrels in July. That means the Saudis would essentially stop their voluntary cut in July.
The group will continue to assess oil market conditions monthly, and decide on whether to adjust production, up or down, for the following month by no more than 500,000 barrels per day.
OPEC+ also extended the amount of time countries have to make up for producing above their quotas to the end of September.
The production decision “shows that patience was exhausted among many producers, who could not accept that some countries — and mainly Russia — was allowed to constantly hike their production while others kept it flat,” said Louise Dickson, oil markets analyst at Rystad Energy.
“The output rise is not likely to be detrimental, especially for June and July as demand will likely also rise, and that is reflected in the market reaction, which is not a panic one to slash price levels,” she said in emailed commentary.
“The output rise is not likely to be detrimental, especially for June and July as demand will likely also rise…”
— Louise Dickson, Rystad Energy
In Thursday trading, May West Texas Intermediate crude
added $2.31, or 3.9%, to $61.47 a barrel on the New York Mercantile Exchange, after touching a fresh intraday high at $61.59 after the OPEC+ announcement.
June Brent crude
tacked on $2.11, or 3.4%, to $64.85 a barrel on ICE Futures Europe.
“The bottom line is that the oil market is getting another nearly 2 million barrels per day over the next three months,” said Dickson. “We always knew these barrels would return eventually, the question now is if they are coming too early versus what the market can digest.”
OPEC+ will hold its next meeting on April 28.