Prior to the last meeting of OPEC Plus ministers, the group was expected to take the same action as last month and not change production levels. However, Saudi Arabia and its allies have shown that they are now more convinced that fuel demand is on a stronger path to recovery after a weak year since the Corona virus outbreak.
As countries like the United States expand their vaccination programs rapidly, there are growing signals that the oil market is improving. US refineries refined the largest oil amount since the pandemic began last week as they prepared to increase driving and air travel.
Although European oil consumption has weakened with extended quarantines or new quarantines in France, Germany, and Italy, demand indicators in China have remained strong. According to Flight Radar 24, the global average of seven days of daily commercial flights reached 77,708 last Wednesday, the highest number since the Corona virus outbreak.
"Even in areas such as severely damaged air travel, there are signs of significant improvement," said Saudi Minister of Energy Abdul Aziz bin Salman in his opening remarks at the OPEC Plus video conference.
From May to July, OPEC and its allies add more than two million barrels a day to oil production. With this increase, a quarter of the production that was frozen a year ago in response to the Covid 19 pandemic outbreak will be revived.
With oil prices hovering above $60 a barrel, OPEC Plus was under pressure to open oil valves. Other commodity prices are rising, and the world's central banks, from the United States to China, are at higher risk of inflation as thousands of billions of dollars are injected into their economies as stimulus measures.
Large consumers, including the United States and India, have called on OPEC to control oil prices. US Secretary of Energy Jennifer Granholm spoke by telephone with her Saudi counterpart ahead of the OPEC Plus ministerial meeting, stressing the importance of cost-effective energy. However, Prince Abdul Aziz told reporters that they had not discussed the oil market.
The Saudi energy minister said the 23-nation group would increase production by 350,000 barrels per day in May, 350,000 barrels per day in June, and 450,000 barrels per day in July. In addition, Saudi Arabia will gradually cut production by 1 million barrels per day, adding 250,000 barrels per day in May, 350,000 barrels per day in June, and 400,000 barrels per day in July.
"OPEC Plus has agreed to a cautious increase in oil production," wrote Anne-Lewis Heatel, chief executive of Wood McKenzie. The agreement supported oil prices and, at the same time, helped prevent a sharp rise in prices as demand for oil grew. Brent oil rose 3.2 percent to $64.75 a barrel on the London-based ICE Futures Europe exchange.
Saudi Arabia's energy minister has said that OPEC Plus is now testing the market and will re-adjust production at the next meeting on April 28 if necessary.
As the world's largest oil exporter, Saudi Arabia has an excellent view of the global economy's health. Aramco, a state-owned company, can see demand for oil in the short term, given orders to buy global refineries two months ahead of shipment. Thus, the decision to increase production shows that Riyadh is witnessing sufficient demand for supply, which will revive in May and June.
According to Bloomberg, Russia and Kazakhstan have increased their production in the past two months, but other OPEC Plus group members have largely not changed their production. Thursday's agreement was an attempt to defuse internal tensions over the policy. An OPEC representative said Abu Dhabi was "extremely dissatisfied" with the move and gave a special privilege to one of the group's most influential producers. All members now receive their share of the increase in production.