The Organization of the Petroleum Exporting Countries and allied oil producers including Russia (OPEC+) agreed to increase collective oil output by 500,000 b/d from January 2021 and will meet monthly thereafter to discuss further adjustments.
The agreement is a compromise among the group after this week’s disagreements over whether to begin production increases. Saudi Arabia preferred extending the 7.7 million b/d in cuts for 3 months, while countries including the United Arab Emirates opposed the extension and wanted countries that had overproduced their quotas to make compensatory cuts. The group’s original plan was to boost output of 2 million b/d in January.
The decision was unexpected said Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy. “An increase of 500,000 b/d from January is not the nightmare scenario that the market feared, but it is not what it really expected weeks ago. During this week traders realized that OPEC+ was not as aligned as they expected and that extending the current cut levels would not be the piece of cake they hoped for.”
“Although there was intense pressure to keep output intact it appears that a settlement with revolting members is reached and a partial increase appears as the likely consensus,” she said.
However, “in front of a no-deal a small increase is not bad news after all… 500,000 b/d of extra supply is not deadly for balances.”
The market has reacted positively to the decision and oil prices are recording a small increase.
Meantime, by only agreeing on January’s production levels, the alliance now has time to gauge whether COVID-19 vaccinations will ease oil demand destruction and speed recovery. That February’s production levels are still up for discussion adds uncertainty ahead of the coming OPEC+ meetings.
