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OPEC+ still undecided on April oil quotas as committee makes no recommendation

Highlights

Saudis pushing for production discipline, sources say

Extra 1 million b/d Saudi cut a major focus of talks

OPEC+ technical report warns of downside risks

London — OPEC+ ministers will try to bridge their philosophical differences on how to manage the oil market's pandemic recovery when they meet March 4, as a key advisory committee issued no recommendation on April output levels.

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Delegates said OPEC kingpin Saudi Arabia continues to urge the producer coalition to be conservative and limit any rise in quotas, to the frustration of other members who are eager to pump and sell more crude to take advantage of the oil market's bull run.

But a full-blown tussle, as has broken out in previous meetings, has been tamped down so far, with the Joint Ministerial Monitoring Committee, co-chaired by Saudi Arabia and Russia, wrapping up its March 3 session quickly with no substantive discussion on production policy, sources said.

"We have not made any recommendations. The discussion will continue tomorrow," one delegate said, speaking on condition of anonymity. "The ministers had poker faces. We will see tomorrow what will be decided."

The OPEC+ meeting will start at 2 pm Vienna time (1300 GMT).

Under the current agreement, OPEC and nine allies are cutting a collective 7.1 million b/d of production -- roughly 7% of global pre-pandemic demand -- which can be eased by up to 500,000 b/d each month.

Saudi Arabia has voluntarily instituted an extra 1 million b/d cut that expires at the end of March, and how much of that the kingdom intends to unwind will be a major focus of the meeting. Saudi energy minister Prince Abdulaziz bin Salman, who called the voluntary cut a gift to his OPEC+ counterparts, has made no public statements on his position, and the JMMC meeting was closed to the public.

S&P Global Platts Analytics said in a recent note that solid OPEC+ quota compliance may be enough to convince Saudi Arabia to continue with at least a portion of its extra cut to keep propping up the market. An OPEC+ technical report showed the alliance achieved 103% compliance on its pledged cuts in January.

"A more gradual rollback of Saudi Arabia's 1 million b/d cut remains a distinct possibility, which could result in tighter markets and signal higher prices as [April loadings] will be needed for increased summer refinery runs," Platts Analytics said.

Dated Brent has hovered around 13-month highs well above $60/b in recent days, buoying the finances of oil producing countries and companies.

Many analysts say the market can absorb a combined 1.5 million b/d OPEC+ production rise without causing oil prices to backslide, as the global economy appears to be rebounding from the pandemic, while rival US producers remain focused more on profitability than output growth.

DANGERS AHEAD

But a report prepared by an OPEC+ technical committee highlighted several potential pitfalls in the market ahead.

While the rollout of vaccine programs and financial stimulus packages has improved market sentiment, "the recent price recovery might be caused more by the increased activity of financial players than by improvement in physical fundamentals," the report stated.

It also noted that upcoming season refinery maintenance will be a damper on crude demand in the second quarter, and while crude benchmarks appear in an ideal backwardation for the producer group to incentivize draws from storage, many markets in refined products remain in contango, indicating ample near-term supply.

The committee "called for cautious optimism due to the underlying uncertainties in the physical markets and macro sentiment, including risks from more transmissible and contagious COVID-19 mutations that are still on the rise, the pace of vaccinations, and risks related to unemployment and trade restrictions."

The analysis showed that if OPEC+ holds to its plan to taper its production cuts to 5.8 million b/d by mid-year and maintain them at that level for the rest of 2021, while exempt members Iran, Libya and Venezuela do not boost their output, OECD commercial oil stocks would shrink to from a projected 128 million barrels above the 2015-19 average at the end of March to 44 million barrels above by the end of June and then fall below that five-year benchmark in the third and fourth quarters.

But a less bullish scenario with slower global demand growth reviewed by the JMMC would see OECD commercial stocks remain well above the 2015-19 target for the year, dragging out the market's recovery.

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