The global oil market is rebalancing after damage to demand wrought by the Covid-19 pandemic was met with curbs on output by producers from the Organization of the Petroleum Exporting Countries (Opec), the group’s president said yesterday.
“Crude prices are relatively stable...we see a certain balance between demand and supply,” Opec president Diamantino Azevedo told Reuters in an interview. “However, due to the pandemic situation the world is living through and with new waves arriving, we could have a situation of smaller demand due to confinements. Vaccination of the global population against Covid-19 will certainly increase demand”.
Opec and other key exporters such as Russia, a grouping dubbed Opec+, meet on Thursday and are expected to discuss allowing as much as 1.5mn barrels per day (bpd) back into the market to address demand likely to be unlocked later in the year as vaccine programmes gather pace.
But Azevedo, Angola’s minister of Mineral Resources and Petroleum, who occupies Opec’s rotating presidency, warned that any worsening of the pandemic could lead producers to tamp down output.
“The production levels that were desirable at the time of the latest adjustment could naturally be affected downward due to...the Covid-19 pandemic and its variants,” he added.
Opec oil output fell in February as a voluntary cut by Saudi Arabia added to agreed reductions under a pact with allies, a Reuters survey has found, ending a run of seven consecutive monthly increases.
The 13-member Opec pumped 24.89mn bpd in February, the survey found, down 870,000 bpd from January.
This is the first monthly decline since June 2020.
Opec+, decided to keep supply mostly steady for February while Saudi Arabia made an extra cut out of concern about a slow recovery in demand.
“So far, the members of the alliance have been co-operating and implementing the cuts in exemplary fashion,” said analyst Eugen Weinberg at Commerzbank. “We believe that the high prices will prompt Opec+ to step up its production by 500,000 barrels per day, while at the same time withdrawing Saudi Arabia’s additional production cut.”
Top exporter Saudi Arabia pledged an additional 1mn bpd output cut for February and March to ensure inventories do not build up.
Riyadh achieved about 850,000 bpd of that reduction in February, the Reuters survey found.
Russia failed to raise oil output in February despite being granted permission by Opec+ as industry sources said challenges in resuming output from mature fields were exacerbated by harsh winter weather.
Until 2017, Russia had never before cut production in tandem with Opec producers.
Last year it was forced to slash output by almost a fifth or 2mn bpd amid a global demand collapse caused by the pandemic.
Resuming production quickly turned out to be more difficult than anticipated as old wells, mostly in Siberia, struggled to add new barrels.
Winter cold was only partially to blame for the problems, four industry sources said.
“We couldn’t add necessary production in February due to failure to restore part of the wells which were “gagged” as part of the Opec+ deal,” said a source at a company, which produces oil in Western Siberia.
There have been similar struggles in the US, where production has fallen steeply over the past year due to cost cuts and adverse weather conditions.
In contrast, Saudi Arabia can easily raise and cut production depending on market conditions thanks to its large spare capacity.
Last year, Energy Minister Alexander Novak, now Deputy Prime Minister, said Moscow planned to emulate the experience of the US and create more spare capacity by pre-drilling wells.
However, implementing that plan appeared to be more difficult than anticipated.
Russia’s February oil and gas condensate output fell to 10.1mn bpd from 10.16mn bpd the previous month, according to Reuters calculations based on an Interfax report citing official data.
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