OPINION: Opec's decision last week to increase production levels and let more oil flow took the market by surprise.
Feeling the pressure from both inside and outside, the group will turn on the taps by an extra 350,000 barrels per day from May and then more in June and July.
The decision is based on hope as much as wisdom.
Before the online meeting, de facto Opec leader Saudi Arabia had expressed determination to hold output at existing levels.
However, it came under pressure from Opec+ member Russia, the US and some fellow Opec nations to change tack.
Saudi Energy Minister Prince Abdulaziz bin Salman put on a brave face, saying: “What we did today (1st April) is, I think, a very conservative measure."
Abdulaziz stressed the move was not influenced by talks with the US or any other officials from oil-consuming nations. But it likely played a part, with new US Energy Secretary Jennifer Granholm putting in a phone call to Abdulaziz before the Opec event.
The Saudis are keen to improve relations with Washington following US condemnation of the 2018 murder in Turkey of Saudi journalist and critic of the Riyadh royal family, Jamal Ahmad Khashoggi.
Granholm had stressed the need for “affordable” energy at a time of such continuing uncertainty over the world economy due to Covid-19.
Vaccine rollouts are going well in some countries — such as the US and UK — but not others, including in the European Union. There have also been renewed lockdowns in Europe.
The US stock market has been booming and, according to some, is going through its strongest rebound rally since 1936.
But a lot of that enthusiasm is driven by an enormous new public stimulus package combined with low interest rates.
US President Joe Biden has just announced a $2 trillion infrastructure boost but nobody seems to have yet factored in the corporate tax increases that may be collected later to pay for it.
Meanwhile, many Opec members — dependent on oil revenues for national wealth — are keen to open the taps and rebuild their finances.
They suffered badly when prices collapsed last year as lockdowns forced global transport to a near standstill.
Internal pressures on Opec rose to a boiling point in autumn, when the United Arab Emirates signalled it was prepared to leave the cartel.
The UAE, Opec’s third-largest oil producer, has been wanting to maximise financial returns by pumping more oil.
It also wants to boost production to help with its plan to establish its Murban crude as a regional benchmark. This in turn would drive the UAE’s wider ambition to be a regional financial hub.
There is a larger tension around Abu Dhabi’s Crown Prince Sheikh Mohammed bin Zayed and Saudi Arabia’s Crown Prince Mohammed bin Salman over who is regional boss on the world stage.
Meanwhile, Iran and Libya, exempt from recent Opec quotas due to US sanctions on Tehran and other disruptions, helped Opec produce an extra 300,000 bpd in March, according to a Bloomberg survey.
The price of oil has remained remarkably steady since the new production plans were unveiled last week.
But Opec's decision to open the taps — albeit in a measured way — will have markets keeping a close eye on price movements.
(This is an Upstream opinion article.)