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Large oil producers review delivery cuts at critical OPEC meeting

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LONDON – A group of some of the world’s most powerful oil-producing countries will meet on Thursday to discuss the next phase of production policy amid the ongoing coronavirus crisis.

OPEC and its non-OPEC partners, an energy alliance sometimes referred to as OPEC +, will meet via video conference starting at 1:00 p.m. London time. A press conference is planned after the end of the meeting.

Analysts broadly believe that OPEC + will reverse some of the production cuts it made last year, although oil prices have faltered on speculation that the group may choose not to increase supply.

The international benchmark’s Brent crude oil futures were trading at $ 64.11 a barrel in the early afternoon, little changed for the session, while US West Texas Intermediate (WTI) crude oil futures were trading at $ 61.31 a barrel thus were 0.1% higher.

Crude oil futures have risen to pre-virus levels in recent weeks, driven by significant production cuts at OPEC + and the mass rollout of Covid-19 vaccines in many high-income countries.

OPEC de facto leader Saudi Arabia has publicly encouraged Allied partners to be “extremely cautious” about production policies and warned the group against complacency in ensuring a full recovery in the oil market.

The non-OPEC leader Russia, meanwhile, announced that it would press ahead with a supply hike and last month claimed the market had already balanced out.

Energy analysts told CNBC earlier this week that OPEC + is expected to bring up to 1.3 million barrels a day back to market in April and possibly beyond.

Oil pumps, also known as “nodding donkeys”, are reflected in a puddle when they operate in an oil field near Almetyevsk, Russia on Sunday, August 16, 2020.

Andrey Rudakov | Bloomberg via Getty Images

Amrita Sen, chief oil analyst at Energy Aspects, told CNBC’s Squawk Box Europe on Thursday that reserve oil capacity was the group’s “biggest challenge”.

“I understand that it’s not just April that they’re talking about. (Saudi Arabia says) essentially to everyone, ‘Look, it’s April and May.’ Just like in January when they discussed the results in February and March, “said Sen.

Saudi Arabia knows that oil producers like Russia, Iran and the United Arab Emirates are ready to pump more oil into the market, she continued. However, Riyadh remains “laser-focused” to bring global oil supplies down to the industry five-year average and will therefore urge the group to reverse the cuts by May.

“Substantially different views and interests”

OPEC + initially agreed to cut oil production by a record 9.7 million barrels a day last year, before slashing cuts to 7.7 million and eventually 7.2 million from January.

OPEC King Saudi Arabia has since made voluntary cuts of 1 million from early February to March.

“The meetings that characterize the typical divisions within OPEC + will be a passionate debate, reflecting radically different views and interests. Saudi Arabia remains at the core of the market management strategy and is by far the most cautious of all member states,” said the Analysts at Eurasia Group said in a research note.

“Complex and contradicting dynamics that have emerged in the past few days will make decision-making difficult, but overall the most likely outcome is a taper of about 1 million bpd, which includes a partial reversal of the previous 1 million bpd cut by Saudi Arabia would. “

VIENNA, AUSTRIA – 06/20/2018: The OPEC logo can be seen in the building of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna. The 174th OPEC meeting will take place on June 22, 2018 in Vienna. (Photo by Omar Marques / SOPA Images / LightRocket via Getty Images)

SOPA pictures | LightRocket | Getty Images

Ahead of Thursday’s meeting, OPEC Secretary General Mohammed Barkindo stressed the need to remain cautious as several ministers pushed for production quotas to be eased.

He warned that the Covid crisis still poses downside risks to the global economy and the distribution of vaccines that benefit the world’s richest nations could lead to an uneven recovery.

“The speculation is that Saudi Arabia might actually surprise the market by failing to return its two-month unilateral cuts of 1 million barrels / day it is holding from February to March 2021,” said Bjarne Schieldrop, chief commodities analyst at SEB, in a note.

“We assume that OPEC + will increase production by 1 to 1.5 million Bl / day in April 2021. If the group only grows by 1 million Bl / day it would mean that Saudi Arabia unilaterally more than its fair share of the market withholding strain to further prop up the market, “added Schieldrop.

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Katherine Clark