Opec+ set to convene as oil price rally slows

The crude price rally has softened in recent weeks, weighed down by inflation concerns and a bleak recovery outlook

A crude oil tanker in Long Beach, California. Oil prices have declined by about 7 per cent over the past two-and-a-half weeks. Bloomberg

The Opec+ alliance is expected to maintain current oil production curbs when it holds another extraordinary meeting on Thursday.

The group, which is led by Saudi Arabia and Russia, has in the past deferred a planned output increase to avoid flooding the market.

Speaking at an extraordinary meeting this month, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said the group preferred to keep its powder dry.

The group will convene its joint ministerial monitoring committee meeting on Wednesday, followed by the extraordinary meeting on Thursday, to decide whether to maintain cuts.

Opec+ has been instrumental in reversing a steep decline in oil prices after movement restrictions to contain Covid-19 led to a fall in energy demand last year.

The group is drawing back 7.2 million barrels per day of supply from the market, supported by an outsize 1 million bpd voluntary cut from its biggest exporter, Saudi Arabia.

It has been careful about easing production cuts despite encouraging signs of an economic recovery.

Riyadh is expected to cancel its voluntary commitment by the end of April.

However, analysts who earlier described a continuation of the current level of cuts as price negative now expect the alliance to maintain its pact.

Opec+ could either extend its production cuts or deepen them, said Shady Elborno, head of macro strategy at Emirates NBD, in a note on Tuesday.

The oil price rally has softened in recent weeks, weighed down by inflation concerns and a bleaker outlook for a recovery in consumption after the pandemic's second and third waves hit many countries.

Prices have declined by about 7 per cent over the past two-and-a-half weeks, even though commodity benchmarks are trading at about 25 per cent higher than at the start of the year.

Brent, the international marker, was down 1.86 per cent at $63.77 a barrel at 5.04pm UAE time. WTI, the US gauge, was down 2.01 per cent at $60.27 a barrel.

The clearing of the Suez Canal, which was blocked by the massive container ship Ever Given, also left prices depressed.

The canal handles about 12 per cent of the world’s seaborne trade.

“Opec+, having maintained production cuts at higher prices last month, seems less likely to open the taps at current levels. And that seems supportive enough,” said Stephen Innes, chief global market strategist at broker Axi.

Opec+ will also come under increasing pressure from oil-importing nations who want the alliance to ease production cuts.

India, a key importer and demand driver for crude, has publicly expressed its disappointment with the group's move to continue keeping a tight lid on production.

“Each monthly meeting on output will grow harder and calls for the unwinding of productions cuts will grow,” said Edward Moya, senior market analyst at New York-based Oanda.

“A consensus was building that Opec+ would easily agree to keep production steady. Now that the colossal container ship is set free, that might change,” he said.