Pressure is mounting on the Organization of Petroleum Exporting Countries and their allies in the extended OPEC+ to roll over their crude oil output cuts when they meet on April 1.
Markets continue to show signs of weakness – even without the Houthi attacks on Saudi Arabia and the Suez Canal closure. But the Suez closure was no normal thing.
Crude oil prices climbed above $70 earlier this month, following a drone attack on Aramco’s largest export facility, Ras Tanura.
None of these events had a sustained impact on the oil markets. The price rally was brief.
Oil prices climbed as investors assessed the impact on global crude flows after a ship ran aground and blocked the Suez Canal, going up by almost six per cent. But then prices began going down.
In normal circumstances, that would have given a big jolt to the market. Not this time.
The markets were experiencing a sell-off until the Suez incident, driving the prices to their lowest levels since early February. The Suez blockage gave the markets a small and brief spike.
The string of market weakness was extended based on renewed reports of COVID-19-related lockdowns in Europe and Asia to head off a rising infection rate, Reuters reported.
Four sources told Reuters that they expect OPEC+ to roll its current supply curbs into May. And we can infer that the Saudi output cut of one million barrels per day will also continue into May.
The troubled rollout of vaccines, the spread of new virus variants, third-wave lockdowns and travel restrictions are delaying any expected economic recovery, and any subsequent surge in oil demand.
Prices have fallen to the low US$60 per barrel range and could well continue falling.
Short-term oil price volatility could be on the cards when OPEC+ meets on April 1 to determine production levels for May. Prospects for a repeat of the March 4 decision to dampen production have increased, Arne Walther of the Oslo-based Walther International Consulting reported on March 25.
Other factors are also entering the equation.
U.S. crude inventories are rising, last week reaching their highest levels since December. The U.S. Energy Information Administration said the American crude oil inventory jumped 1.912 million barrels last week.
Market observers also can’t overlook the rising prospects of increased crude exports from Iran. While the U.S. administration of President Joe Biden is still evaluating how to restore the Iran nuclear deal, some sort of accommodation remains a possibility.
That has emboldened some operators to expand their purchases of crude from Iran. The Chinese commerce ministry said on Thursday that it will make efforts to safeguard its Iran oil deal and defend legitimate interests of Sino-Iran relations. Reuters reported last week that Iran has “indirectly” moved record volumes of oil to China in recent months, marked as supplies from Oman, the United Arab Emirates and Malaysia.
Chinese imports of Iranian crude will hit 856,000 barrels a day in March, the highest level in almost two years and up 129 per cent from February, said Kevin Wright, a Singapore-based analyst with Kpler.
All these factors have created a bearish impact on the oil markets and major stakeholders are taking the developments seriously.
“I don’t think there is an idea to pump a lot of oil, more than the market can handle,” Suhail al-Mazrouei, the U.A.E. energy minister, told Forbes Middle East.
OPEC+ seems to have little option but to roll over its production cuts.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.