OPEC+ has lowered its 2021 oil demand growth forecast by 300,000 barrels per day reflecting concerns about the market’s recovery as new coronavirus lockdowns take hold, a move that could strengthen the case for a cautious output decision this week.
The Joint Technical Committee (JTC), which advises the group of oil-producing nations that includes Saudi Arabia and Russia, met on Tuesday ahead of a ministerial meeting on Thursday to decide output policy.
Under its base-case scenario, it expects oil demand to grow by 5.6 million barrels per day this year, down by 300,000 bpd from its previous forecast, the report showed.
It also raised its global supply growth forecast by 200,000 bpd to 1.6 million bpd.
As a result, it sees oil stocks in the industrialized world dipping below the 2015-2019 average in August a month later than it previously forecast.
Sources also told Reuters that Saudi Arabia supports production cut extensions at their current rates.
JP Morgan believes OPEC+ will trade cautiously when it meets this week by largely rolling over its production cuts into May and that Saudi Arabia will extend its voluntary cut by two more months until the end of June, it said in a research note.
“We expect the alliance to start adding production in 500,000 barrel per day (bpd) increments beginning in June and lasting through August,” it said before Thursday’s OPEC+ meeting.
Oil prices have risen to over $60 per barrel since the meeting. But renewed restrictions in Europe as vaccine distribution fumbles have hit oil demand estimates.
The survey of 48 participants forecast Brent would average $63.12 per barrel in 2021, up from last month’s consensus of $59.07 and the average price so far this year of $59.36.
The benchmark was trading close to $64 on Wednesday.
Senior market analyst at OANDA Edward Moya said the US economy was recovering fast, driving global demand for oil higher despite a faltering outlook in Europe.
Central to the price recovery thesis are expectations that OPEC+ will extend output cuts that now run into April and only modestly raise output after that.
Energy markets analyst at IEG Vantage Marshall Steeves said $60 could prove pivotal, as above that level US shale oil becomes more economical, prompting more production and putting US crude back in competition with OPEC+ for market share.
Saudi Arabia could start raising output at prices above $70, but by that point US output was already likely to be rising, as listed shale firms seek to boost financial returns, he said.
Plans by Indian state refiners to reduce their reliance on Saudi crude poses a further test for the kingdom, which has made voluntary production cuts in addition to its OPEC+ reductions.
Sources said the refiners planned to cut Saudi oil imports by about a quarter in May.
In addition, Intesa Sanpaolo analyst Daniela Corsini said: “High prices could stimulate output growth and incentivize cheating from OPEC+” on agreed quotas.
Also, Washington could proceed with talks with Iran for a new nuclear deal. “Therefore, it’s possible that Iranian exports will increase toward end-2021,” she said.
