Saudis triumph in oil market with comeback from Covid-19 crisis | Fin24

It’s been a very good year for OPEC, of which there are 23 member nations, says an analyst.

• Saudi Arabia is set to pump oil at pre-Covid-19 levels of
  9.8 million barrels a day this month.
• With crude prices revived at $80 per barrel, the kingdom’s
  petroleum revenues are at a three-year high.
• Demand for oil has been supported by a shortage of natural
  gas and associated price increases.

When the OPEC+ alliance of oil producers gathers next week,
group leader Saudi Arabia can savour a moment of triumph.

Eighteen months after slashing crude production during the
pandemic, the Saudi Arabian capital – Riyadh – is set to pump at almost
pre-Covid-19 levels of 9.8 million barrels a day this month as a recovering
global economy clamours for energy supplies.

Furthermore, by bringing those shipments back slowly enough
to avert a new surplus, Saudi Energy Minister Prince Abdulaziz bin Salman has
revived crude prices to $80 a barrel. That’s swelled the kingdom’s petroleum
revenues to a three-year high, putting them on track for an even bigger payout
in 2022.

“OPEC+ has had a very good year,” said Ben
Luckock, co-head of oil trading at commodities merchant Trafigura Group. “They
have delivered: they have managed to thread the needle.”

That’s a far cry from the tumult of last March, when the
plunge in fuel demand briefly pitched Organisation of Petroleum Exporting
Countries and its partners into a vicious fight over customers. Those bitter
memories seem very distant as the 23-nation network – jointly led by the Saudis
and Russia – prepares to meet on Monday.

If there’s a threat to the delicate balance OPEC+ has
achieved, it’s that the market could overheat and prices rise too high.

The alliance has signalled it will stick with its schedule
of modest production increases by approving another 400 000 barrel-a-day
increment for November. But the market has shifted since that road map was
agreed in July.

The shortage of natural gas, which has sent prices to the
equivalent of $190 a barrel, is spurring a switch to oil products for heating
and manufacturing, boosting overall demand. US oil production is still
recovering from Hurricane Ida, which has knocked out a total of almost 35
million barrels after slamming the Gulf of Mexico a month ago – equivalent to
almost two full months of OPEC+ supply increases.

Anxious consumers

Anxiety among key consuming nations is palpable, especially
if they end up experiencing a cold winter. China has instructed top energy
firms to secure supplies at any cost. US President Joe Biden’s administration
says it has reminded OPEC of the need to support the recovery, and National
Security Adviser Jake Sullivan met with Saudi Crown Prince Mohammed bin Salman
this week.

“OPEC will come under increasingly intense pressure
from Washington to open the production release valve and cap the upside”
in prices, said Helima Croft, chief commodities strategist at RBC Capital
Markets. “An increase beyond the 400 000 barrels a day is a live option
for Monday.”

That’s a view shared by the world’s largest independent
trader, Vitol Group. Not only is demand being boosted by the shortage of
natural gas, the supply outlook is tightening as prospects diminish for a swift
deal to revive Iranian exports, said Chris Bake, the company’ head of
origination.

Tehran and Washington have been involved in negotiations to
reactivate a nuclear accord – and lift US sanctions on Iranian oil shipments –
but the talks have so far made little headway. As a result, roughly 1.4 million
barrels a day of Iranian crude that traders thought might be entering the
market in late 2021 remains absent.

Bigger boost?

Some OPEC+ delegates say privately that the increase
approved at Monday’s meeting could be bigger than the scheduled 400 000 barrels
a day. Scenarios for larger hikes have been considered, said one official.

The Saudis themselves don’t want to see prices spiral toward
$100 a barrel, as excessive fuel costs would curtail demand and stimulate a
revival in US shale output, according to people familiar with the kingdom’s
thinking.

A spike in crude prices – just weeks before world leaders
gather in Glasgow, Scotland, for a fresh round of climate talks intended to
shift the world away from fossil fuels – could boost support for the transition
to renewable energy.

But the kingdom is not yet convinced that crude’s jump above
$80 in London earlier this week reflects a genuine supply shortage, the people
said.

OPEC+ is likely to wait and see whether the natural gas
deficit bolsters oil demand “materially” before speeding up the
return of output, said Amrita Sen, chief oil analyst and co-founder of
consultant Energy Aspects. Such steps may be taken “in the future, but not
yet.”