OPEC Meeting Results in Increased Production
On Thursday, OPEC and allies agreed to increase production by 500,000 barrels per day starting in January, according to CNBC.
This makes the total production cuts at the start of 2021 7.2 million barrels per day. The conversations were tense and ongoing for several days. It was expected that OPEC+ would extend the current production cut of 7.7 million barrels per day through March. Talks were suspended Tuesday after it was determined that no compromise was in sight.
“500,000 bpd from January is not the nightmare scenario that the market feared, but it is not what was really expected weeks ago,” said Rystad Energy senior oil markets analyst Paola Rodriguez Masiu. “Markets are now reacting positively and prices are recording a small increase as 500,000 of extra supply is not deadly for balances,” she added.
Following the announcement, the international benchmark Brent crude futures traded 1.4 percent higher to $48.92 per barrel. US West Texas Intermediate futures were up 1.15 percent to $45.80. However, oil prices are still down more than 25 percent year-to-date.
When the pandemic was realized as an existential threat in April, OPEC agreed to the largest output cut in history. The record cut of 9.7 million barrels per day began on May 1, but was reduced to 7.7 million in August.
It was suspected that Saudi Arabia wanted to keep the current level of cuts in place through the first quarter of 2021. “Surprisingly this time, it was not a discord between Russia and Saudi Arabia that prevented the group from reaching a clear agreement on whether to delay the planned production increase,” Ole Hansen, head of commodity strategy a Saxo Bank, said. “Instead a perhaps more dangerous divide, from an OPEC stability perspective, has emerged between Saudi Arabia and the U.A.E., two GCC countries that normally speak with one voice.”
“OPEC+ controls almost 50% of the global production,” Tamas Varga, senior analyst at PVM Oil Associates, said in a research note Thursday. “This privilege, however, comes with a burden (and) it has been laid bare this week.”