London — Saudi Arabia has a 1 million b/d question to answer.
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The OPEC kingpin has been cutting its crude production by that much below its official quota the last two months, bolstering oil prices against the unsteady pandemic prognosis.
Now as OPEC and its allies prepare to meet April 1 to decide on May output levels, the market awaits word from Saudi energy minister Prince Abdulaziz bin Salman on when the kingdom will begin easing its production restraint.
Early indications are that it may not be soon.
Faltering oil prices in recent days after a weekslong surge to around $70/b have many analysts forecasting that the so-called OPEC+ group may largely roll over its quotas for at least another month.
The OPEC secretariat itself is less bullish than it was just three weeks ago and is revising down its forecast of 2021 oil demand growth to 5.6 million b/d, after officials determined March 30 the previous estimate of 5.9 million b/d was overly optimistic, delegates told S&P Global Platts. The new projection has yet to be finalized.
While setting OPEC+ quotas requires unanimous consent among the coalition's nearly two dozen members, Saudi Arabia's voluntary cut is a unilateral decision, making Prince Abdulaziz's reading of the market's tea leaves the focal point of the week.
The OPEC+ deliberations will begin with a March 31 virtual meeting of the Joint Ministerial Monitoring Committee, which the prince co-chairs with Russian counterpart Alexander Novak, before all 23 OPEC+ ministers convene online on April 1.
TAKING IT SLOW
The alliance's current quotas are keeping more than 7.1 million b/d of crude production off the market, with Saudi Arabia adding its extra 1 million b/d cut on top.
Under its agreement, the bloc can adjust output caps by up to a collective 500,000 b/d each month, but largely eschewed that at its last meeting March 4, choosing to keep production levels steady through the end of April, except for slight increases granted to Russia and Kazakhstan to meet what they said are seasonal needs.
Dated Brent, assessed at $63.54/b on March 30, is some $4/b below where it was after that meeting, as a fresh lockdown measures in Europe and a strengthening US dollar have combined to put a damper on the market's coronavirus recovery.
Several OPEC+ delegates told S&P Global Platts they expect the same conservative approach to guide this week's talks.
OPEC Secretary General Mohammed Barkindo told a delegate-level advisory committee March 30 that "while last month saw many positive developments, it also witnessed reminders of the ongoing uncertainties and fragility caused by the COVID-19 pandemic," according to a statement.
But brighter days may be ahead for the group.
Platts Analytics forecasts that global oil demand will grow by 2.6 million b/d in May over April and another 4.6 million b/d by July, as the world continues to emerge from the pandemic, and Vitol, the world's largest independent trader, estimates that oil inventory levels will shrink to 2019 levels later this year.
As well, Saudi domestic crude demand for power generation is set to grow as temperatures rise into the summer and air conditioning usage increases. That could prompt Saudi Arabia to relax its production curbs over the next few months, but Prince Abdulaziz has so far not given any hints on what he might announce at the upcoming meeting.
A Saudi source told Platts the kingdom has not yet decided on its position and, with OPEC+ consultations still to begin, it would be premature to assume an outcome.
WHAT THE MARKET REQUIRES
The prince, a veteran of several oil peaks and crashes, has favored keeping a tight grip on supply, at times frustrating other members who have agitated to pump more to take advantage of the rally in prices since last spring's market meltdown.
He has also liked to keep traders guessing on his policy moves, warning them repeatedly not to front-run OPEC+ decisions.
His unveiling of Saudi Arabia's voluntary 1 million b/d cut at the alliance's January meeting caught many -- including fellow OPEC+ members -- by surprise, shooting prices upward and prompting warnings that oil supply could be overly tight as demand returns.
Prince Abdulaziz has since said Saudi Arabia plans to "gradually phase in" those extra barrels, but has insisted that it would depend on market conditions, as well as whether its OPEC+ counterparts maintain their strong quota compliance.
"We will see what the market requires," he said at a March 4 meeting. "We are not required to bring it back fast or furious. We will bring it back at our convenience. It is our voluntary cut, it is for us to decide."
Concerns remain among some members, notably Russia, about reviving US shale producers with higher prices. And recent production gains by OPEC countries exempt from quotas -- Iran, Libya and Venezuela -- are also likely to be discussed.
With its output discipline, Saudi Arabia has reaffirmed its status as the world's predominant swing producer, driving OPEC+ decisions. Now, the market awaits the cautious kingdom's call on its 1 million b/d cut -- a bellwether for the pandemic's oil recovery.