Oil Markets Special: OPEC+ Preview Mar 2021

Market Analysis / 2 Min Read
03 Mar 2021

Highlights 

  • Next OPEC meeting scheduled to take place on March 4
  • A sharp rise in global oil prices means the calculus for the OPEC+ alliance becomes more complicated on several levels
  • Rising prices could drag on demand growth in developing market economies; for supply, individual members could push to ease curbs and up revenues 
  • Possibility that Iranian oil could return to the market in higher volumes

What began as a power issue for a handful of US states quickly turned into a global supply shock for the oil markets; Brent crude surged to over $65/bbl overnight, a level not seen since April 2019. With production constrained, inventories drawing and vaccines promising a return towards normalcy, expectations continue to run high for oil markets.

The sharp rise in global oil prices before the March 4 OPEC meeting means the calculus for the OPEC+ alliance becomes more complicated on several levels. 

On the demand side, rising oil prices could begin to drag on demand growth in developing market economies – India's sensitivity to higher oil prices comes to mind. On the supply side, individual members could push to ease curbs and spruce up their revenues significantly. 

Rising oil prices might also clear the way for a faster US shale oil rebirth. So far, this possibility remains shelved as the consensus view has been that capital markets will continue to turn backs on US E&P producers to fund a sizable rebound in capital-intensive drilling. 

Currently, the OPEC+ alliance is mostly complying with maintained production curbs agreed in January, keeping 8.1 mbd of supply from the market and boosted by an additional 1mbd of unilateral cuts by Saudi Arabia. Demand is also coming in stronger than expected, although the continued work-from-home policies and depressed international and business travel will remain a drag.

There is the possibility that Iranian oil could return to the market in higher volumes should the new Biden administration rejoin the JCPOA and relax secondary sanctions on Iran. Over the last couple of years, sanctions have kept some 2.2 mbd of Iranian oil out of global markets. On the face, there seem to be good reasons for both sides to agree. On the Iranian side, the economy appears to be in a worse state than in 2015. On the US side, the Biden administration has been vocal that the US should rejoin the JCPOA, including some sanctions relief, as long as Iran resumes compliance with the terms of the agreement

If Iranian oil came back, Saudi Arabia would likely increase its production rather than lose market share to its geopolitical competitor. While the new US administration is in no rush to reverse sanctions, it’s certainly a headwind for oil down the road. 

For more market insights, follow me on Twitter: @Steveinnes123 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

More on this topic

See More News

Open your account. Trade within minutes.

Start your trading journey with a trusted, regulated, multi-award winning broker.

Open Account Try Free Demo