OPEC and its allies will proceed with plans to gently revive oil production as global demand recovers from the pandemic, despite surging infections in India.
A committee led by Saudi Arabia and Russia agreed the coalition should press on with its roadmap for increasing supply by 2 million barrels a day over the next three months, a decision that was later rubber-stamped in a statement from the whole group.
World oil consumption will rebound by a vigorous 6 million barrels a day this year, according to OPEC+ estimates, though the recovery remains at risk from virus outbreaks in India and Brazil. As a result, the glut of oil inventories that amassed when demand collapsed last year will be almost gone by the end of this quarter.
“We can take comfort in knowing that our leadership has helped turn the tide,” Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said on Twitter. “But at the same time, the persistence of Covid-19 reminds us that this is no time to stray from the cautious and steadfast approach we have taken over the past year.”
The OPEC+ alliance slashed output to help revive the global oil industry from an unprecedented price rout last year, when the pandemic crushed fuel demand. The producers are now carefully restarting those supplies as economic activity resumes, beginning with an increase of about 600,000 barrels a day in May. The group is currently idling about 8 million barrels a day, or roughly 8% of world supplies.
In its statement, OPEC+ “highlighted the continuing recovery in the global economy” but also noted “that Covid-19 cases are rising in a number of countries, despite the ongoing vaccination campaigns, and that the resurgence could hamper the economic and oil demand recovery.”
The global oil market “is on the one hand positive, we see a recovery of demand and higher global GDP estimates,” Russia’s Deputy Prime Minister Alexander Novak told Rossiya 24 television after the OPEC+ committee’s conference call. Nevertheless, the group must keep monitoring the coronavirus situation across many regions, including Asia, he added.
“We see that some countries record higher coronavirus numbers, like in India and Latin America, which raises some concerns about further growth of demand,” Novak said.
Crude futures held gains after the OPEC+ gathering, trading 0.4% higher at almost $66 a barrel in London.
It was the OPEC+ Joint Ministerial Monitoring Committee that initially recommended sticking to their planned output increase. Ministers from the panel then asked other OPEC+ members to cancel the full meeting scheduled for Wednesday, and instead they drafted Tuesday’s statement by exchanging diplomatic messages.
Global oil inventories will decline at a rate of 1.2 million barrels a day on average this year, technical experts at OPEC+ estimated on Monday. It’s a faster pace than the draw-down of 800,000 a day they projected a month ago. As a result, the stockpile surplus in developed nations will be whittled down to 8 million barrels by the end of the quarter.
“You’re seeing incredibly strong demand,” BP Plc Chief Executive Officer Bernard Looney said in a Bloomberg TV interview on Tuesday. China’s oil demand is above pre-pandemic levels, the U.S. is almost back there and “vaccines are going to kick in now in Europe.”
Virus infections in India, the world’s third-biggest oil importer, are increasing at a record pace. The outbreak could crimp the country’s fuel demand this month by as much as 350,000 barrels a day, according to consultant OilX. But for the time being, the recovery in China and the U.S. is eclipsing lower demand in India, said one senior OPEC+ delegate, who asked not to be identified.
The coalition has the ability to move quickly if the situation deteriorates, because it now meets roughly every month, the delegate said. The next OPEC+ gathering is scheduled for June 1, according to the statement.
“The dark cloud is India,” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC. But “even if Indian demand were to deteriorate further, they have a mechanism to act pretty quickly.”