By Adedapo Adesanya
Oil surged by more than 4 per cent on Thursday to the highest in more than a year after the Organisation of the Petroleum Exporting and its allies (OPEC+) surprised traders with its decision to keep output unchanged.
The Brent crude rose by 4.64 per cent or $2.97 to sell at $67.04 per barrel, while the West Texas Intermediate (WTI) crude increased by 4.59 per cent or $2.81 to sell at $64.09 per barrel.
At its meeting on Thursday, OPEC+ decided to keep a tight limit on oil production in April, sending prices soaring in a market that had been expecting additional supply. This signalled a tighter crude market in the months ahead.
The cartel had been debating whether to restore as much as 1.5 million barrels a day of output but Saudi Arabia was able to convince members to hold steady at current levels.
However, modest increases were granted to Russia and Kazakhstan and will be allowed to increase production by 130,000 and 20,000 barrels per day, respectively.
Now, oil prices are expected to do better as the supply squeeze, coupled with higher energy costs, the risk of inflation, and widespread vaccination, will allow economies to emerge from the COVID-19 downturn.
Before the meeting, Saudi Arabia had publicly encouraged allied partners to remain “extremely cautious” on production policy, warning the group against complacency as it sought to ensure a full oil market recovery. The outcome of yesterday’s meeting has been touted as a victory for the kingdom, which has consistently pushed to tighten the market.
In a briefing after Thursday’s meeting, Saudi Energy Minister Prince Abdulaziz bin Salman, went one step further by making the kingdom’s additional one million barrel-a-day production cut open-ended. He gave no date for phasing out the voluntary reduction and told reporters he was in no hurry to do so.
While the decision will boost economies like Nigeria and other oil-dependent economies, it also carries some risks. Crude prices in the high $60s could help revive US shale drillers.
OPEC+ initially agreed to cut oil production by a record of 9.7 million barrels per day last year, before easing cuts to 7.7 million and eventually 7.2 million from January. The cartel will meet again on April 1 to discuss production levels for May.
