The OPEC+ group of oil producers, led by Saudi Arabia and Russia, may have got inventory levels back up to where they want them, but that doesn’t mean they can take their feet off the brakes on production just yet.
At their last meeting, inauspiciously held on April Fool’s Day, the group set out a path to restore some of their shut-down production over the next three months. The easing, but not yet the ending, of output curbs reflects a more optimistic view of demand for oil as the northern hemisphere moves into its summer months.
The output increases are relatively modest — 350,000 barrels a day in May, the same in June and another 440,000 barrels in July. On top of that, Saudi Arabia will gradually restore the additional 1 million barrels a day that it cut unilaterally in February.
But by the end of July, although the producers will have added almost 2.3 million barrels a day to supply since March, they will still only be pumping what they’d originally planned for January. And they will still be withholding almost 60% of the production they cut a year ago.
The strength of oil prices owes a lot to the group’s discipline and its willingness to delay the easing of output cuts, even as it neared its self-set target of reducing commercial oil stockpiles in OECD countries to their average 2014-2019 level.
According to the latest monthly forecast from the U.S. Energy Information Administration, that target has already been reached. But don’t expect that to mean a sudden flood of oil from Saudi Arabia, Russia and their allies. Their approach will, rightly, remain cautious.
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