OPEC+ oil production is blocked in part by the reserves of producing countries. The latter should indeed seek to sell off the stocks accumulated at the height of the health crisis in 2020 before massively re-producing.
Oil production to increase gradually in 2021
Oil production for April will be discussed tomorrow at the OPEC+ meeting this Thursday, March 4.
Suhail al-Mazrouei, Minister of Energy of the United Arab Emirates (UAE) said:
“We had a better-than-expected start to the recovery in January and now expect to see demand return to 2019 levels by early 2022.” Before adding that “The market’s ability to absorb an additional 1.5 million b/d from OPEC in April will depend on the success of the vaccine rollout and its impact on the demand recovery.”
Progressive easing of production
OPEC, Russia and their oil-producing allies (OPEC+) are gradually easing the production cuts imposed in 2020. Reductions were reduced from 9.7 million b/d in December to 7.7 million b/d. Then in January, they were further reduced to 7.2 million b/d, or about 7% of pre-pandemic demand.
The alliance has planned to phase out cuts to 5.8 million b/d by mid-year. For Russia, the resumption of production is essential. Instead, Saudi Arabia seems to want to temper a too rapid recovery.
OPEC+ expects to regain pre-Covid-19 market share
OPEC+ expects to regain lost market share once demand returns to normal levels. Suhail al-Mazrouei states:
“As the lowest-cost producers, we know that when the situation returns to normal, we could easily recover them. The goal today is to balance the market and get investors to make sure we have enough hydrocarbons in two or three years.”
Thus the UAE, members of the Production Reduction Monitoring Committee, want to increase their compliance rate to over 100%. The country will therefore work to reduce its production capacity, which currently stands at 4.2 million b/d.
The UAE remains optimistic that oil will return to pre-crisis levels. TheAbu Dhabi National Oil Co. (ADNOC) even plans to increase its oil production capacity by 25% by 2030. It will then be able to produce 5 million b/d.
The Murban futures contract, ADNOC’s flagship crude, is also scheduled to be launched on an Abu Dhabi-based exchange on March 29.