PRESS ROOM
Saudi Arabia’s role key in sustaining oil price momentum
Thursday 21st January '21
Oil prices have continued their strong run in January adding to their gains since the start of November. Oil prices have rallied strongly in the past two months on the expectation that positive vaccine news will revive demand, while the Organization for Petroleum Exporting Countries (OPEC) and its partner countries (combined as OPEC+) will extend their current quota into the first quarter of 2021 (instead of tapering it as originally planned). Further support to prices has come in January as Saudi Arabia has announced additional voluntary cuts to shoulder the burden of another shock to demand following the latest OPEC meeting. The de facto OPEC leader will voluntarily cut production by 1 million barrels per day in February and March. However, that is to allow Russia and Kazakhstan to increase their production over those two months, leaving OPEC production broadly flat. Russia and Kazakhstan, with cold winters, are facing an increase in domestic demand but are not expected to increase exports. Global demand, however, is likely to take another knock from the renewed Covid related lockdowns. We, therefore, believe that recent oil price gains are highly dependent on Saudi Arabia continuing to be the cutter of last resort. Given the frictions displayed between the UAE and Saudi Arabia last month, we know that this can be a precarious assumption. But for now, the bold moves by Saudi Arabia have pushed oil prices back to levels seen before the disastrous March 2020 OPEC meeting.