VIENNA/NUR-SULTAN/MOSCOW – After two days of arduous negotiations, OPEC+ members unveiled on Tuesday a compromise whereby Saudi Arabia will slash its crude output by an additional 1 million barrels per day in February and March and Russia and Kazakhstan will moderately boost production.
The announcement at the conclusion of a two-day video conference caused global oil prices to soar by around 5 percent to their highest levels since last February, prior to the onset of the coronavirus crisis.
“Saudi Arabia will make a voluntary (production) cut in February and March of 1 million barrels per day,” Saudi Oil Minister Abdulaziz bin Salman said in a press conference on Tuesday following the conclusion of OPEC+’s first meeting of the year.
He said his country will produce around 8.25 million bpd in the year’s second and third months.
Earlier Tuesday, the Kazakh Energy Ministry said a decision had been made to continue to downwardly adjust the overall crude production of the participating OPEC and non-OPEC countries, although it said Russia and Kazakhstan will have “special conditions.”
Those countries are planning “a gradual increase in production of 10,000 and 65,000 barrels per day, respectively,” in February and March, said the ministry, which noted that OPEC and its allies have sharply curbed their output since May 2020 due to the economic impact of the pandemic.
The OPEC+ group agreed to slash its overall output by a record 9.7 million bpd in May and June. OPEC and its allies, however, lowered the daily production cut to 7.7 million bpd starting in August to meet rising demand and then decided to reduce it again to 7.2 million bpd starting January 2021.
Saudi Arabia, the world’s largest crude exporter and also OPEC’s undisputed leader, has been cautioning fellow cartel members since December about the risk of raising output at this time.
Along those lines, the Saudi oil minister pleaded on Monday for “maximum caution” at the start of the meeting, warning that the emergence of new and more contagious mutations of the novel coronavirus represent an unpredictable development.
In the meeting’s final statement, the country’s oil ministers echoed those concerns, pointing out that “rising infections, the return of stricter lockdown measures and growing uncertainties have resulted in a more fragile economic recovery that is expected to carry over into 2021.”
Although recognizing that the incipient rollout of COVID-19 vaccines has sparked an improvement in market sentiment, the statement stressed the “need for caution due to prevailing weak demand and poor refining margins, the high stock overhang and other underlying uncertainties.”
While the Saudis appear determined to defend oil prices, Russia remains focused on recovering production and avoiding a loss of market share to shale oil producers in the United States.
Russia’s deputy prime minister, Alexander Novak, expressed confidence that the oil market will fully recover in 2021 from the coronavirus crisis.
He said Russia’s production quota will rise from 9.12 million bpd this month to 9.18 million bpd in February and 9.25 million bpd in March thanks to the fact that Saudi Arabia will voluntarily reduce its output by 1 million bpd during those two months, a move he termed a “gift to the global oil market.”
Even so, different sources said the agreement was reached after testy negotiations and only after assurances that the increased production in Russia and Kazakhstan will only be used to supply domestic markets in those countries, where demand rises in the winter months.
The video conference kicked off on Monday but was suspended due to a lack of consensus and was resumed on Tuesday.
The outcome of the meeting caused the price of Brent crude – the global benchmark – to rise to $53.57 per barrel, up 4.85 percent from Monday’s close. West Texas Intermediate, the US benchmark, climbed more than 5 percent on Tuesday to eclipse the $50 per barrel mark for the first time since February.
OPEC+ will review the global situation and make a new decision on oil output in a video conference scheduled for Feb. 4.