Oil producing countries grouped together under the OPEC+ alliance led by Saudi Arabia and Russia agreed Thursday to only limited output increases as of next month.
Crude prices shot higher after the announcement, with the main international contract, Brent, rising 1.8 percent to $63.84, while the US contract WTI jumped 2.1 percent to 60.39.
In a statement issued after the meeting, the ministers noted “improvements in the market supported by global vaccination programmes and stimulus packages in key economies”.
However, they also noted “the volatility observed in recent weeks warrants a continued cautious and vigilant approach in monitoring market developments.”
Kazakhstan’s energy ministry said that a decision was taken to collectively increase output by OPEC+ countries by 350,000 barrels per day in May, 350,000 bpd in June and 450,000 bpd in July.
Under its current agreement, the OPEC+ group — made up of the Organization of Petroleum Exporting Countries and its allies including Russia — is enforcing drastic cuts in production, meaning seven million barrels that could be shipped to markets every day are being left in the ground.
– Gradual increase –
“The OPEC+ decision for a gradual output increase surprised some energy traders,” said market analyst Edward Moya at Oanda, who said expectations were for no increase in May but a stronger hike in June.
“Given the improving crude demand outlook in Europe, oil prices did not completely fall off a cliff given the staggered output increase across May through July,” he added.
Addressing reporters after the meeting, Saudi Energy Minister Prince Abdulaziz bin Salman stressed that the decision could still be “tweaked” in the alliance’s monthly meetings.
Before the meeting Prince Abdulaziz said that “the reality remains that the global picture is far from even, and the recovery is far from complete”.
“And until the evidence of the recovery is undeniable, we should maintain this cautious stance.”
Prince Abdulaziz praised the OPEC+ alliance nations for more than fulfilling their current commitments to restrain output.
The cuts were aimed at avoiding limited storage capacity being saturated and supporting prices.
– Russian optimism –
While Saudi officials urged caution about opening up the taps too much too fast, their Russian counterparts expressed optimism, both before and after the meeting.
“Today, there are figures that are much more positive concerning the market, including the level of stocks which have considerably fallen as demand increases,” Russia’s Deputy Prime Minister Alexander Novak said on Rossiya 24 television following the meeting.
“Vaccination is already yielding positive results so that demand is recovering,” he added.
While acknowledging uncertainty remains, Novak said “We’re optimistic about the future.”
He said that the tone of Thursday’s meeting was more positive than those at the beginning of the year.
With the northern hemisphere heading towards summer, Novak said he expected demand to rise as road and air traffic increase.
“We think the situation on the market will normalise and that we’re going to see positive indicators,” he added.
Earlier this month the International Energy Agency (IEA) took a more downbeat outlook about the oil market, estimating that global demand could take another two years to get back to its pre-crisis levels.