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Saudi energy minister urges caution as OPEC+ talks begin on April cuts

Highlights

Some members seek relaxed output quotas with prices surging

Prince Abdulaziz says OPEC+ should remain vigilant on supply

London — Saudi energy minister Prince Abdulaziz bin Salman has again staked out a hawkish position on OPEC+ cuts, urging the alliance not to allow euphoria over surging oil prices to erode production discipline amid a still evolving pandemic outlook.

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Saying that the producer group should "keep our powder dry and have a contingency in reserve to ensure against any unforeseen outcomes," Prince Abdulaziz appeared to be girding for tough negotiations with his counterparts, as they began talks to hammer out a deal on April output levels.

"There is no doubt that the global oil market has improved since we last met in January," he said in his opening remarks of the OPEC+ ministerial meeting. "Before we take our next step forward, let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train."

The alliance, which is currently reining in about 7 million b/d of production – about 7% of pre-pandemic supply -- has helped engineer a nearly 80% rise in the Dated Brent benchmark since November with what the prince said was "historically high" quota compliance, as well as Saudi Arabia's voluntary extra 1 million b/d production cut in February and March.

Against this backdrop, several countries are pushing to relax their quotas, in particular Russia, sources have told S&P Global Platts, and Prince Abdulaziz's preference for a more measured approach has bred frustration.

Russian Deputy Prime Minister Alexander Novak said in his opening remarks that it was imperative for the group to stick to the parameters of their supply accord, which allows quotas to be rolled back by up to 500,000 b/d each month as demand recovers from the pandemic.

"The market has not yet fully recovered, although we are in better shape than some time ago," Novak said. "We see that lockdowns and logistical restrictions are being maintained, extended and new ones appear but at the same time we see vaccinations becoming more available. These are all the points that need to be considered when making a decision."

Novak and Prince Abdulaziz held bilateral consultations late March 3, after a meeting of the key OPEC+ monitoring committee they co-chair ended with no formal recommendation on April quotas.

Besides any changes to the formal OPEC+ quotas, Saudi Arabia must also decide how much of its extra cut to release back onto the market.

"How smooth the meeting will turn out hinges on whether Saudi Arabia wants to reinstate the 1 million b/d and if not, how the total increase should be shared out among the members," said Ole Hansen, head of commodity strategy for Saxo Bank.