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OPEC’s Saudi Arabia and Russia are in conflict again

Saudi Energy Minister Abdulaziz bin Salman (R) was photographed with his Russian counterpart Alexander Novak when they arrived for the meeting of the Saudi-Russian Joint Committee on December 19, 2020.

FAYEZ NURELDINE | AFP | Getty images

LONDON – A group of some of the world̵

7;s most powerful oil producers will hold a crucial meeting on Thursday to discuss reversing some of the production cuts made last year.

OPEC and its non-OPEC partners, an energy alliance, sometimes called OPEC +, will come together by videoconference to try to reach a consensus on how to manage supplies in the market.

Last year, the group agreed to limit the amount of oil it produces in a bid to boost oil prices, as austerity measures coincided with an unprecedented shock to fuel demand.

The delivery decision comes at a time when oil prices have recovered to pre-virus levels, US production has been hit by freezing storms and the coronavirus pandemic continues to cloud prospects.

The de facto leader of OPEC Saudi Arabia has publicly encouraged allied partners to remain “extremely cautious” about production policy, warning the group against complacency as it seeks to orient itself in the ongoing Covid-19 crisis.

Meanwhile, the non-OPEC leader Russia has said it wants to move forward by increasing supply.

Analysts generally expect OPEC + to increase production from current levels, but questions remain about exactly how many and which countries will be affected.

During an industrial event last month, Saudi Energy Minister Prince Abdulaziz bin Salman told those trying to anticipate the next move of the energy alliance: “Don’t try to predict the unpredictable.”

Both Saudi Arabia and Russia “will get what they want”

Tamas Varga, an analyst at PVM Oil Associates, told CNBC by telephone that he believed OPEC and non-OPEC partners had done an “incredible job” in rebalancing the market.

However, as global oil demand recovers, he warned that the recovery was still “very, very fragile”.

“What really matters here is Russia and Saudi Arabia. The cost of security for the Russian budget is much lower than that of Saudi Arabia, so you will see some gap in the views between the two countries,” Varga said.

OPEC + initially agreed to cut oil production by a record 9.7 million barrels a day last year, before cutting cuts to 7.7 million and eventually 7.2 million from January. Since then, the king of OPEC Saudi Arabia has made voluntary cuts of 1 million from early February to March.

Oil pumping jack, also known as “nodding donkey”, at an oil field near Durtyuli, Republic of Bashkortostan, Russia, on Thursday, November 19, 2020.

Andrey Rudakov Bloomberg | Getty images

Alexander Novak, Russia’s deputy prime minister, appears to be signaling Moscow’s intention to increase supplies last month, saying the market is already balanced.

“Russia wants to return to normal production as soon as possible, while Saudi Arabia wants to enjoy high prices a little more and rather keep the market in a narrower than in a loose country. We believe that both will get what they want, “Bjarne Schieldrop, chief commodity analyst at SEB, said in a research note.

Russia is likely to be allowed to increase production further, he added, while Saudi Arabia will return “some or potentially all” of its 1 million barrels a day unilaterally.

Analysts expect OPEC + to discuss the release of about 1.3 million barrels per day on the market on Thursday.

Russia will gain momentum in their market view, but we do not see a complete switch.

Louise Dixon

Analyzer at Rystad Energy

“The statements from Saudi Arabia show that they are on the caution side. They would rather keep it a little longer than go into oversupply before the Covid-19 vaccines really do their magic on global economic activity and oil demand. Said Shieldrop.

“The upcoming OPEC + meeting is unlikely to ruin the oil party in terms of supply in April, as the overall result is likely to leave the market a little shorter than in excess.”

OPEC + is not yet ready to change course

Brent crude futures traded at $ 63.01 a barrel on Tuesday morning, down nearly 1.1 percent, while US West Texas (WTI) crude futures were at $ 60.02. , which is a decrease of more than 1%.

Oil prices, which peaked at a 13-month high last month, appear to have extended losses that began last week, due to expectations that OPEC + could be set to increase global supply.

“We expect them to increase in line with their previous political deal, which was announced in December 2020. And that is not to increase production by more than 500,000 barrels per day. We expect this policy to remain valid.” , Louise Dixon, an analyst at Rystad Energy, told CNBC by phone.

The logo of the Organization of the Petroleum Exporting Countries (OPEC) at headquarters.

Omar Marquis LightRocket | Getty images

She added that in theory, OPEC could increase production by 1.3 million barrels per day, but “we do not think this time will exceed.”

“Russia will gain momentum in their market view, but we don’t see a complete switch. Over the last year, OPEC + has been really firmly under the reins of Saudi Arabia, leading politics, making talks, calling shots, etc. And I don’t think after a year of such diligence in the market and supply, the group is ready to move at a rate of only a whim of $ 65 Brent or an increasingly tight oil market, “she said.

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