On Thursday, OPEC and Russia agreed to ease current deep oil production cuts by 500,000 barrels a day in January, but failed to come to an agreement on a broader and longer term policy for the remainder of next year.
The negotiations were difficult due to the differences of opinion between the members. A delicate balance had to be struck between raising oil prices enough to help their budgets and the extremes that would encourage US oil.
This production increase means that allies, including OPEC + Russia, will move to reduce production by 7.2 million barrels per day, or 7% of global demand, from January, compared to current 7.7 million barrels per day.
OPEC + was expected to extend current cuts until at least March, after abandoning its previous plan to increase production by 2 million barrels. However, things changed as the new coronavirus wave lowered demand and demand prospects for the future became questionable.
However, after hopes of rapid approval of anti-virus vaccines sparked a surge in oil prices at the end of November, some producers as well as the OPEC’s leader Saudi Arabia began to question the necessity to harness oil policy so tightly.
The desire of Russia, Iraq, Nigeria and the United Arab Emirates to supply more oil to the market in 2021 emerges tension.
Russian Deputy Prime Minister Alexander Novak said the group will meet each month to decide on production policies beyond January, that is to be with increases no longer exceeding 500,000 barrels per month, and that compensatory cuts for countries with overproduction in previous months have been extended until March 2021.
Following the OPEC decision, Brent crude oil prices increased its earnings as up as 1% to $ 48.71 per barrel.
Some countries’ oversupply risks continue. After the new US President Joe Biden, Iran and Venezuela’s uncontrolled supply surpluses are not yet known what will happen.