After something of a surprise last month, when it kept production levels frozen, the Opec+ group again wrongfooted the market on Thursday. General expectations were for an extension of quotas. Instead, the alliance decided to ease cuts, an important step on the road to recovery.
Despite hopes that there would be no production increases, and a technical committee meeting on Tuesday’s reduction of demand growth forecasts from 5.9 million barrels per day to 5.6 million bpd this year, Brent crude actually rose by 1.4 per cent on the news of the final arrangement.
The idea now is to add 350,000 bpd in both May and June and 441,000 bpd in July, although monthly additions could be up to 500,000 bpd.
Saudi Arabia will also gradually ease its voluntary extra cut of 1 million bpd. That will bring 2.1 million bpd or more back to the market over the next three months.
If Opec+ can adhere to this plan – it has two more monthly meetings to change course before July – its cuts will amount to 5.8 million bpd from July, back in line with the original plan from last April. That would be quite an achievement, given the chaos in the intervening period.
A couple of jolts this year – the Texas freeze in February and the Suez Canal blockage last month – have had only transient effects on the market.
The demand picture is mixed, with a new wave of Covid-19 cases worldwide, particular concerns in Brazil and India, a slow European vaccine campaign and the danger of new virulent strains with high transmission rates that pose a greater risk to younger people.
On the other hand, refinery runs are returning to normal, except for jet fuel. US stocks are essentially back to pre-pandemic levels and American road and air travel appears to be recovering over the Easter holidays.
Forecasts suggest a mild worldwide deficit of oil supplies even in the second quarter of this year, traditionally a period of weak demand.
Higher domestic consumption in Saudi Arabia during summer will give the kingdom room to boost output without increasing exports much.
Despite its heavy dose of environmental objectives, US President Joe Biden’s proposed $2.3 trillion infrastructure plan will be supportive of petroleum consumption over the medium term but bearish in the long term.
An increase in production was becoming harder to resist, whatever the demand signals. It was hard to continue handing out moderate increases to Russia and Kazakhstan, and tolerating Iraqi overproduction while Saudi Arabia continued to bear the burden of extra cuts and the UAE was keen to make more use of its expanded capacity.
Russia has been exceeding its quota and did so by about 165,000 bpd in February. March exports fell sharply and if it keeps production steady, it will be compliant by April.
Deputy Prime Minister Alexander Novak said it will gain 114,000 bpd between May and July, which is true in terms of its quotas. More likely, it will continue to push the limits.
Opec member Iran, which is not part of the deal, managed to boost its exports significantly this year in defiance of US sanctions. Indirect talks between Iran and the other parties to the 2015 nuclear deal commence tomorrow in Vienna, Opec’s usual home.
Given the tension, some of Tehran's neighbours will not be keen on it regaining market share should the negotiations bear fruit, while their output remains capped.
Opec also had to bear in mind the quickening pace of drilling in the US that will, after a lag of a few months, lead to higher production. India has been complaining that high oil prices will crimp its demand. The US is uneasy about the sharp rise in prices in February and early March.
Although the deal framework would keep production constant after July until the end of next April, that may not be realistic.
Recovering demand will require Opec+ to continue adding crude, even if it pauses in some months when problems strike.
What should Opec+ look out for from this point? The pandemic and the associated issues of international travel, vaccination, new infection waves and lockdowns remain pivotal.
The organisation should be proactive to meet anticipated demand – acknowledging how difficult forecasts remain – rather than risk further price spikes and the revival of rivals.
Not as essential, but also significant, is the level of supply outside the deal – most importantly from volatile Libya, sanctioned Iran and price-sensitive US shale.
The structure of oil futures prices is also important. They are now in backwardation, with prices for future delivery lower than prompt, a structure that indicates the market is relatively tight.
Opec prefers this as it encourages the draining of surplus stocks and deters its competitors, tight oil drillers in the US, from hedging output.
There is still a long way to go towards a semblance of normality, both in oil markets and the world at large. However, this production increase gives some confidence of heading in the right direction – hence the gain in prices as it was announced.
Down the road lurks another difficult conversation, on a future realignment of quotas as growing capacity in some members confronts depletion in others. For now, the next few steps are mapped out.
Robin Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis
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Company name: baraka
Started: July 2020
Founders: Feras Jalbout and Kunal Taneja
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Sector: FinTech
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UAE currency: the story behind the money in your pockets
What is tokenisation?
Tokenisation refers to the issuance of a blockchain token, which represents a virtually tradable real, tangible asset. A tokenised asset is easily transferable, offers good liquidity, returns and is easily traded on the secondary markets.
UAE currency: the story behind the money in your pockets
Iftar programme at the Sheikh Mohammed Centre for Cultural Understanding
Established in 1998, the Sheikh Mohammed Centre for Cultural Understanding was created with a vision to teach residents about the traditions and customs of the UAE. Its motto is ‘open doors, open minds’. All year-round, visitors can sign up for a traditional Emirati breakfast, lunch or dinner meal, as well as a range of walking tours, including ones to sites such as the Jumeirah Mosque or Al Fahidi Historical Neighbourhood.
Every year during Ramadan, an iftar programme is rolled out. This allows guests to break their fast with the centre’s presenters, visit a nearby mosque and observe their guides while they pray. These events last for about two hours and are open to the public, or can be booked for a private event.
Until the end of Ramadan, the iftar events take place from 7pm until 9pm, from Saturday to Thursday. Advanced booking is required.
For more details, email openminds@cultures.ae or visit www.cultures.ae
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The five pillars of Islam
La Mer lowdown
La Mer beach is open from 10am until midnight, daily, and is located in Jumeirah 1, well after Kite Beach. Some restaurants, like Cupagahwa, are open from 8am for breakfast; most others start at noon. At the time of writing, we noticed that signs for Vicolo, an Italian eatery, and Kaftan, a Turkish restaurant, indicated that these two restaurants will be open soon, most likely this month. Parking is available, as well as a Dh100 all-day valet option or a Dh50 valet service if you’re just stopping by for a few hours.
UAE currency: the story behind the money in your pockets
KILLING OF QASSEM SULEIMANI
What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
Killing of Qassem Suleimani
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7.30pm: Handicap (TB) | Dh100,000 | 1,600m
Winner: Juthoor, Jim Crowley, Erwan Charpy
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
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The biog
Name: Salem Alkarbi
Age: 32
Favourite Al Wasl player: Alexandre Oliveira
First started supporting Al Wasl: 7
Biggest rival: Al Nasr
The years Ramadan fell in May
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Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
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MATCH INFO
AC Milan v Inter, Sunday, 6pm (UAE), match live on BeIN Sports
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Pharaoh's curse
British aristocrat Lord Carnarvon, who funded the expedition to find the Tutankhamun tomb, died in a Cairo hotel four months after the crypt was opened.
He had been in poor health for many years after a car crash, and a mosquito bite made worse by a shaving cut led to blood poisoning and pneumonia.
Reports at the time said Lord Carnarvon suffered from “pain as the inflammation affected the nasal passages and eyes”.
Decades later, scientists contended he had died of aspergillosis after inhaling spores of the fungus aspergillus in the tomb, which can lie dormant for months. The fact several others who entered were also found dead withiin a short time led to the myth of the curse.
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