A group of major oil producers has agreed to extend production cuts for another month despite a recent price surge, choosing to limit supply until the global economic recovery is more firmly established.
OPEC and allied producers said on Thursday, March 5th that they would largely roll over production cuts during the month of April.
The OPEC+ group agreed in January to keep production steady for February and March. At that time, Saudi Arabia surprised markets by pledging to cut its production by an extra 1 million barrels per day and agreed on Thursday to extend its extra cut through April.
Supply cut amounts to nearly 8 million barrels per day. Last year, OPEC+ slashed output by 9.7 million barrels per day.
Price recovery has accelerated in recent months as millions of people around the world have been vaccinated against COVID-19.
Brent crude, the global benchmark, increased by more than 5% to $67.55 on Thursday. US oil prices were above $64.50, a far cry from the depths reached last April when oil crashed below zero for the first time in history.
The International Energy Agency expects world oil demand to grow by 5.4 million barrels per day in 2021 to reach 96.4 million barrels per day, recovering around 60% of the volume lost to the pandemic.
Wood Mackenzie forecasts global demand will increase by 6.3 million barrels per day year on year in 2021. It also expects Brent oil prices to rise toward $70 to $75 during April, assuming that OPEC+ does not raise output that month, with the exception of Russia and Kazakhstan.
OPEC+ has helped drain a global glut that accumulated during the pandemic through its supply management, pushing crude futures up more than 30% so far this year. The strength is evident across many corners of the oil market, with key time spreads widening further in a bullish backwardation structure, an indication of tightening supplies.
As part of the agreement, Russia and Kazakhstan were granted exemptions and will be allowed to boost production by 130,000 and 20,000 barrels per day, respectively. The group’s next meeting is scheduled for April 1 to discuss production levels for May.
Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman said the Saudis will “gradually phase” back in the one million barrels per day it has cut from its own production.