Saudi Arabia and Russia may continue to support oil prices

The Organization of Petroleum Exporting Countries announced this week that it would cancel its planned April meeting and postpone its decision to June on whether to stick to the 1.2 million barrel/day reduction plan.

Helima Croft, global head of commodity strategy at RBC Capital Markets, said in a report released Wednesday that the decision to wait for the conventionally scheduled meeting further highlighted Saudi Arabia’s determination to continue with planned production cuts and ignore American noise.

Croft wrote that Khalidal-Falih, Saudi oil minister, recently said that the rebalancing target of supply and demand was far from being achieved, suggesting that production would continue to be cut for the rest of the year. Croft recently shared her views on the oil market in Barron’s Energy Roundtable.

Companies in OPEC oil-producing countries and Russia, the leading non-OPEC oil-producing country, may not be happy about limiting production, but political benefits may benefit in the short term in terms of profits. Croft said that considering Russian President Vladimir Putin was the ultimate decision maker, Putin continued to believe that cooperation with OPEC could not only increase revenue, but also enhance its global status, so Putin would ultimately choose to maintain this arrangement and maintain the leading position.

The fragile output of Venezuela, a member of OPEC, and the risks facing Iranian production also favour oil prices.

Demand may grow rapidly as oil inventories decrease. Michael Tran, commodity strategist at Canadian Capital Markets, wrote in a report released Wednesday that domestic aviation fuel demand in the United States is growing at the fastest pace in decades. Tran said the analysis showed that the elasticity of aircraft fuel demand to fuel prices was small, because it had promised to fly flights without being affected by lower passenger rates. New aircraft sales and delivery, as well as infrastructure improvements in the Asia-Pacific region, will also increase aviation fuel demand.

Martijn Rats, an analyst at Morgan Stanley, said in a report released Tuesday that insufficient supply in the third quarter suggested Brent crude could rise to $75 a barrel. He estimates a supply gap of 500,000 barrels per day in the second quarter, followed by a 60% rise to 800,000 barrels per day in the third quarter. At the same time, oil demand has been robust, Rats said. The International Energy Agency predicted in January that global oil demand would grow by 1.5 million barrels a day this year. Rats expects an increase of 1.3 million barrels a day, down from previous years, but in contrast to fears of a sharp slowdown in growth at the end of last year.

He said CERAWeek, a large oil and gas conference in Houston in mid-March, changed his view. Rats said the impact of some upside risks may be greater than previously expected. Rats said the most worrying slowdown in oil demand seemed less severe. According to his price target, Brent crude oil may rise another 10%.