Demand concerns are rekindled! Crude oil tumbled 9%, is OPEC+ willing to increase production significantly?

On Monday (March 28), international oil prices fell to a two-week low, while Western countries' sanctions on Russian energy exports continued to impact the supply side, the outside world is paying attention to the impact of a new round of the epidemic on the demand side, and Russia and Ukraine will launch a new round of negotiations also suppressed the risk premium
.

At press time, WTI crude and Brent crude oil have extended their after-hours losses to more than
9%.
The OPEC+ monthly ministerial meeting will be held on Thursday, and sources revealed that all parties intend to continue to promote the release
of production capacity as planned.

Multiple factors disrupt supply and demand

The dire pandemic situation is posing a major threat to energy consumption demand, and the world is now facing the threat
of a new peak due to the accelerated spread of several subtypes of the Omicron strain.
A WHO spokesman warned last week that the pandemic is far from over and is still in the middle of the
pandemic.

Andy Lipow, president of Lipow Oil Associates, said: "The new market sell-off reflects panic as energy markets try to find alternatives to Russian oil supplies, with concerns that a new coronavirus pandemic could have a significant impact
on demand.
”

On the supply side, since the escalation of the situation in Ukraine last month, the volatility of international oil prices has increased significantly, and the geopolitical risk premium has remained high
.
Commerzbank said that a new round of peace talks between Ukraine and Russia is about to take place, which is also one of
the important reasons for weighing on oil prices.
Ukrainian President Volodymyr Zelensky's statements on seeking security guarantees, neutral status and non-nuclear status are expected to create conditions
for a ceasefire between the two sides.

Industry data showed that Russia's crude oil exports were barely affected in March, as most of the impact was felt
before the conflict.
Russian media quoted Kremlin spokesman Dmitry Peskov as saying that the decline in Russian oil orders will be replaced
by contracts from Southeast Asian countries.
Countries such as India are still buying Russian crude, and PT Pertamina is also considering Russian oil
.

However, with the gradual entry into effect of the sanctions of the United States and European allies, the impact on Russian crude oil exports will gradually appear
.
The International Energy Agency (IEA) recently warned that Russia's 3 million barrels per day oil production in April was at risk
as sanctions orders forced buyers to avoid Urals oil.

Data released this month by the Organisation for Economic Co-operation and Development showed that crude inventories in its member countries have fallen to their lowest levels since 2014, driven by a recovery in energy demand
, behind the economic recovery.
U.
S.
attempts to consider another release of the Strategic Petroleum Reserve (SPR) are also constrained by insufficient reserves at the Cushing reservoir in Oklahoma
.
"We still expect crude oil to continue to rise as the market continues to price in
the risk of supply disruptions.
" TD Securities of Canada released a report on Monday that "right-tail risks in the energy market remain high, and the case for continuing to raise oil prices remains strong
.
" ”

OPEC+ may continue the pace of production increases

On Thursday, OPEC+, the oil-producing group, will hold a new ministerial meeting
.
Several sources close to OPEC said the group is likely to stick to its plan to
modestly increase oil production in May, despite the spike in oil prices caused by the Ukraine crisis and consumer calls for increased oil supplies.

Since August 2021, OPEC+ is releasing 400,000 b/d of capacity
on a monthly basis.
Following objections from the UAE, the parties agreed to allow an additional 432,000 b/d of capacity from May to be released by Saudi Arabia, Russia, Iraq, the UAE and Kuwait on top of the baseline
.

International crude oil prices have soared this year, and the escalation of the situation in Ukraine has brought crude oil to a record high set in 2008 in early March
.
Several consumer countries, including the United States, have urged producers to further increase production
.
But key OPEC members such as Saudi Arabia and the United Arab Emirates have been delaying raising their targets and have been shying away from talking about
Ukraine.
In exchange for increased oil supplies, Riyadh wants more Western support in the war in Yemen and security guarantees
over the Iran nuclear deal, according to people familiar with the Saudi side's position.

Some sources told the media that OPEC+ is likely to stick to the original May production increase plan, and Saudi Arabia's reluctance to expand production capacity more significantly also reflects its cautious attitude
.
"Saudi Arabia is careful not to raise oil production above plan so as not to send the wrong signal
against Moscow.
" Russia has also expressed opposition to OPEC+ increasing its May program and wants support from partners
.
The above person said
.

It is worth mentioning that although OPEC+ continues to raise its capacity target, some members are unable to complete their quota capacity
due to equipment and oil field constraints.
According to the latest IEA estimates, the actual OPEC+ capacity gap reached 1.
1 million b/d
in February.
This has also been an important factor
supporting oil prices.