Opec+ meet in Azerbaijan amid increasingly tightened oil markets

The alliance is expected to keep the pact to slash production through the second half of the year

A "mild winter" could have also contributed to the slowdown in demand for the first quarter of 2019 according to UBS. AP.

Opec and non-Opec producers in compliance with an output restriction deal will meet in Baku, the capital of Azerbaijan, on Sunday and Monday amid the highest surge in crude prices this year.

The meeting follows pledges by Saudi Arabia and the UAE to make deeper cuts to rebalance the oil markets. Prices in November plunged dramatically to around 30 per cent of the three-year high of $86.29 per barrel of the previous month.

Benchmark Brent reached $67.55 per barrel last Wednesday, its highest level this year, as sentiment turned bullish on the basis of increased tightening in the market.

Supply from Venezuela slumped to only around 1 million barrels per day in February, according to secondary sources cited by Opec, as the country continues to suffer production declines due to ongoing political turmoil.

Opec+, as the alliance undertaking market rebalancing is known, is widely anticipated to extend its production cuts through to the second half of the year.

Opec, led by Saudi Arabia and compliant non-Opec producers led by Russia, agreed in 2018 to cut output by 1.2 million bpd for six months starting January.

While the alliance was not specific on the exact terms of the cut, they agreed to convene in Baku before their general meeting mid-April in the Austrian capital of Vienna. Russia is also expected to reduce its production further over the coming months following criticism that the country was not compliant enough with the agreement.

Moscow trimmed its output by 82,000 bpd to 11.336 million bpd in February, according to data from the Russian Energy Ministry’s CDU-TEK unit.

Saudi Arabia's Energy Minister Khalid Al Falih said last week that the alliance was unlikely to reverse the deal to produce less oil than usual.

State oil producer Saudi Aramco will keep allocations for April at 9.8 million bpd as the world’s largest exporter looks to keep its supply tight.

The UAE also pledged to "exceed" its compliance with the production cut pact with the production-cut deal. UAE Energy Minister Suhail Al Mazrouei in a tweet last week said the country would "continue to deliver voluntary production adjustment" until the markets are rebalanced.

The UAE’s output at the end of January, according to secondary sources cited by Opec, was 3.078 million bpd.

The convention of the alliance in Azerbaijan also comes against the background of US pressure to force the producers to push for lower prices.

The US President Donald Trump has repeatedly criticised Opec saying the organisation is raising oil prices artificially. He tweeted in February that the alliance should "please relax and take it easy" as oil prices were "getting too high".

Mr Trump has been lobbying for lower prices even as domestic production in the United States has surged to a record high, making the country the top crude producer globally.

Lower oil prices appeal to US voters and consumers, with Mr Trump tweeting that the slump in prices towards the end of 2018 were a “tax cut to America and the world”.

The rise in US supply will continue to weigh on the markets with the International Energy Agency saying in its Oil Report 2019 released last week that it would account for 70 per cent of the increase in global production capacity until 2024, contributing an additional 4 million bpd.