On Tuesday, Jan. 5, the 13th OPEC+ ministerial meeting concluded in Vienna with a statement on OPEC’s official website showing that the alliance will continue to increase production slightly in February and March, with production adjustments to be determined in April and beyond, following the decision to increase production by 500,000 bpd in January.
According to the “Voluntary Production Levels” document given on the official website, most OPEC+ members will keep their output unchanged in February and March this year, in line with January, especially the 10 OPEC members that previously participated in the production cut program.
Non-OPEC Kazakhstan will increase production by 10,000 bpd in each of February and March, while the “other pole” of OPEC+, Russia, will increase production by 65,000 bpd in each of February and March. That would leave OPEC+ with a collective production cut of 7.2 million bpd in January, 7.125 million bpd in February and 7.05 million bpd in March, or a modest nominal increase of 75,000 bpd in both February and March.
Another source familiar with the matter said that Saudi Arabia plans to voluntarily cut oil production in February and March by more than 400,000 bpd of additional production on a monthly basis, which is tantamount to in essence making OPEC+ expand its production cuts in February and March. At the same time, this also means that all other OPEC+ member Sun countries, except for Saudi Arabia, Russia and Kazakhstan, will keep their oil production policies unchanged in February and March.
At lunchtime in the U.S., the Saudi Energy Minister announced at an OPEC+ press conference that the country will voluntarily cut oil production unilaterally by 1 million barrels per day in February and March; starting February 1, Saudi oil production will be 8.125 million barrels per day.
Russian Deputy Prime Minister Novak said at a press conference that OPEC+ implementation of the oil production cut agreement exceeded 100% in November 2020. Saudi Arabia’s decision (to expand oil production cuts) could be a “New Year’s gift” to the crude oil market in 2021.
The news sent U.S. oil WTI back above the $50 psychological round number mark, the first time since February 2020 to break above this mark, extending intra-day gains to more than 5%. International Brent also expanded to 5%, refreshing the daily high to $ 53.63, a new high of nearly 11 months since February 16, 2020.
Some analysts pointed out that on Monday there was news that Russia supported a further 500,000 bpd increase in OPEC+ production from February this year, while the vast majority of oil producers, represented by Saudi Arabia, suggested keeping January output unchanged, a major difference that brought yesterday’s meeting to a fruitless end. The latest agreement reached on Tuesday was a compromise, with Russia and Kazakhstan receiving only half of the overall 500,000 bpd increase planned, while Saudi Arabia’s “shocking” determination to voluntarily cut production to balance the market was an unexpected positive.
As it stands, OPEC+ has internally agreed to a small increase in production from Russia and Kazakhstan, while Saudi Arabia is using its own efforts to make OPEC+ actually cut production in the first quarter of this year, rather than increase production overall. This appears to be a “desperate effort to keep Russia in the coalition of oil supply management”. Although the increase in production by Russia and others was small and short-lived, it set a terrible precedent. After all, the markets remember that the UAE took a rare stand against Saudi Arabia at the OPEC+ meeting late last year, rather than as a staunch ally.
In fact, the concluding statement of the meeting released on OPEC’s website is also full of “reluctant compromises”.
For example, the document reaffirms that a stable oil market is in the common interest of producing countries, acknowledges the need to gradually return 2 million bpd of oil to the market, depending on market conditions, while also pointing out that OPEC+ needs to be cautious given that the resurgence of the new crown epidemic, the adoption of stricter anti-embargo measures by countries and increased uncertainty will make the expected economic recovery in 2021 more fragile.
And yesterday’s news showed that Russia’s proposal to increase production by a further 500,000 bpd in February was based on the fact that oil consumption is picking up and fears of losing market share to U.S. producers who are not constrained by production. But most of the OPEC+ agreement cutters present opposed the February production increase out of fears of an epidemic and a judgment that the vaccine would not be distributed as quickly as desired. The wording of Tuesday’s official document can be seen to meet the demands of both sides.
And the extent of the increased contradictions within OPEC+ is also evident in the official meeting summary document released today.
For example, the document praised the UAE and Angola for exceeding their production cuts and reiterated the “critical importance” of full compliance with the agreement and compensation for production cuts by countries not in full compliance, requiring them to submit compensation plans for production cuts by January 15. Russia, for its part, said at a press conference that the OPEC+ production cut compliance rate exceeded 100 percent last November, blurring the need for its own compensatory cuts.
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