"This is not only on the back of the April production decision, but also on the expectation that OPEC+ could taper the production cuts announced in April 2020 in response to the COVID crisis much more slowly than originally indicated," ADCB said in a March 7 report. The bank in a Jan. 27 report had forecast Brent at $54.70/b for 2021 and $60/b for 2022.At the OPEC+ meeting, Saudi Energy Minister Prince Abdulaziz bin Salman indicated no rush to reverse the voluntary 1 million b/d cut promised by the kingdom. "We now believe that OPEC+ will be more responsive to a pickup in demand, with a focus on further rebalancing. Thus, we now see a tighter oil market, including a greater drawdown in inventories," the bank said.
The OPEC+ alliance, which controls about half of the world's production capacity, will mostly maintain its quotas, with Russia allowed a 130,000 b/d increase and Kazakhstan a 20,000 b/d rise. Including the 1 million b/d staying offline from Saudi Arabia, this means the group will keep about 8 million b/d of crude production, or roughly 8% of pre-pandemic supply, off the market for another month.
Oil prices rose sharply after the OPEC+ meeting with Brent at $69.40/b.
Inventories are expected to decline "meaningfully" toward the five-year average during H1, supported by the OPEC cuts and a demand recovery, ADCB said.
"Indications are that activity in the US oil industry is returning to normality from the Texas storm in February, though it is likely to take some more weeks to get clarity on how demand conditions have evolved and on what has been the impact on inventories," the bank said.
Meanwhile, modest stock draws in March are set to expand, according to S&P Global Platts Analytics. "With demand growth set to surge into the summer, stock draws are set to be large," Richard Joswick, global head of oil pricing, operations and trade flow analytics, said in March 4 report. "With very little increase in supply for April, the stock draws will come earlier. In effect, OPEC's decision advances the price response. Whether prices move higher yet will ultimately depend on future OPEC production later in Q2 and the summer."
For supply levels, output from the US, Iran and Venezuela is unlikely to see a marked increase in the upcoming months, the Abu Dhabi bank said.
"Despite the rise in the oil price so far this year, shale producers have been cautious about resuming capex," ADCB said. "The US weekly oil rig counts continued to rise gradually in early 2021. However, shale output has fallen in recent months with investment in new wells not keeping up with the decline in oil output at producing wells."
If the global demand increases by 2.7 million b/d in Q2 and an additional 1.1 million b/d in Q3 as forecast by OPEC, "it would create space for boosting OPEC+ output later in the year," ADCB said. "Our core view is that progress with the global vaccination program and easing of global restrictions from mid-2021 onwards should help boost oil demand during the summer months."
