OPEC+ preview: Saudis continue to take the strain

Commodities

OPEC+ meets this week after its surprise decision to extend production cuts through April. Prices enjoyed something like a Suez Canal ‘put’ but this is fading fast.

A pullback in prices since the last meeting has rather vindicated OPEC’s decision to maintain production curbs. Prices declined since the March meeting amidst liquidation of speculative long positions as the pandemic worsened in Europe and lockdown restrictions were reimposed. Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, has made it clear that the country is not willing to bet on a post-pandemic rebound in demand. It’s likely that given the retreat in prices OPEC+ and particularly the Saudis will feel vindicated and will stay the course. Saudi Arabia will keep cutting the additional 1m bpd and continue to do the heavy lifting for the market.

With the Saudi unilateral cut in play, Russia’s influence is not what it was a few months ago. So, while Russia will be watching for US shale output (Baker Hughes rig count has risen for 8 straight months), the Saudi aim of prioritising prices over market share ought to win out. For now US shale output is not rebounding significantly.

Watch for the UAE as it has recently spent big on increasing its production capacity. Its new Murban benchmark launches this week. Also look to overproduction by Iraq and rising output from exempt countries Libya and Iran. And we will be watching for whether Russia – which is increasing output by 125,000 bpd in April from 9.18 million bpd in February – is allowed to further raise production in May.

WTI (May) showing double bottom support around the $57.40 level but the 200-period SMA on the 4hr chart proving to offer resistance near-term as it meets the $62 horizontal round number.

WTI (May) showing double bottom support around the $57.40 level