As OPEC and its allies prepare for another decision on oil production, producers believe their cautious approach is paying off.
Three weeks ago, the Saudi-led coalition was widely criticized for not supporting the resumption of oil production. But Energy Minister Prince Abdulaziz bin Salman has made it clear that he is not going to rely on forecasts, and will believe that demand has recovered only when he sees it.
This April 1, OPEC and its allies will hold a meeting to discuss their next plans on oil production. Many expect that they will consider increasing the rate. However, many also believe that they will maintain the current restrictions since its past supply cuts have helped push oil prices up by more than 20% despite constraints in demand.
In fact, according to Reuters, Saudi Arabia is ready to extend the supply cuts to May and June, as well as to continue its additional 1 million bpd cut.
Back in February, Saudi volunteered to remove 1 million more on its output in order to give way to Russia and Kazakhstan as both requested to be allowed to increase their production for February and March.
Since then, OPEC has been very sensitive to any changes in production, especially since its liberated members, Libya and Iran, continued to raise output.
And now, crude purchases in Asia have slowed because the sluggish tourist season failed to stimulate fuel demand. Supply, on the other hand, increased because Iran pushed up exports to China, ignoring US sanctions.
As a result, just a week after hitting a one-year high, oil futures fell nearly $ 10.
Tomorrow, OPEC will discuss whether to gradually raise production, which many members are waiting for. Meanwhile, Saudi wants to revise its additional production cut in order to accelerate the process of eliminating the lingering oil surplus.
But with prices still below the levels many OPEC members need to meet government spending, delegates say the coalition is going to act as cautiously as it did last time.
Although if production did increase at the next meeting, it will most likely be in Russia and Kazakhstan again.
Aside from that, there is another stumbling block for OPEC as the US proposed a law that states the coalition must be punished for “fixing prices”. The bill is yet to be approved.
Concerns are also rising regarding the diplomatic relations between the United States and Iran, which is a member of OPEC.
While Tehran and Washington remain disconnected, the renewed nuclear deal between the two countries, which President Joe Biden is pushing for, could lift sanctions on nearly 2 million bpd of Iranian oil. Such could turn the market around again.