Saudi Arabia: Oil prices rise in early May
Oil prices increased in recent weeks, despite OPEC+’s decision to ease its production cuts starting from May, as stronger demand prospects outweighed higher supply. On 7 May, the OPEC oil basket traded at USD 67.5 per barrel, up 11.2% from the prior month. Meanwhile, the price was 34.3% higher on a year-to-date basis and was 194.6% higher than on the same day last year.
OPEC+’s decision to ease production cuts for May and June in early April, which took analysts by surprise, led to a slight fall in prices. However, prices subsequently rebounded on the back of stronger demand prospects, supported by the ongoing economic recovery. Nevertheless, recent concerns over Covid-19 spikes in India, Brazil and Japan, and their potential impact on the global economic recovery, likely tempered the overall rise in prices.
In terms of OPEC production, combined crude oil output among members increased from 24.8 million barrels per day (mbpd) in February to 25.0 mbpd in March—the latest month for which data is available. This mostly reflected higher output in Iran, while production in Saudi Arabia was relatively unchanged from February’s 8.2 mbpd in March.
Our panelists expect Saudi oil output to average lower in 2021 relative to last year due to its commitment to bolster crude oil prices.
Commenting on the outlook for OPEC+ production, Edward Bell, senior director at Emirates NBD, noted:
“Our expectation for oil market balances following the OPEC+ news is unchanged and we still expect to see a market deficit of more than 2m b/d on average in H2 2021, under the assumption that OPEC+ incrementally adds more barrels. That supports our view that oil prices can be sustained at high levels of USD 65/b+ in the Brent market and we are leaving our annual price targets of USD 67/b for Brent and USD 63/b for WTI unchanged.”