OPEC and Russia on Thursday agreed to a slight increase in production quotas in January, reducing their deep oil output cuts from January by 500,000 barrels per day, according to reports. The decision taken by OPEC and Russia signals the world’s biggest producers “are betting the worst of a pandemic-inspired shock to demand is behind them,” according to the Wall Street Journal.
But the group failed to find a compromise on a broader and longer term policy for the rest of next year, delaying a more difficult agreement until later. The curbs are largely still in place to tackle weak oil demand amid a second coronavirus wave.
According to the WSJ, the deal marks “a compromise after sharp disagreements earlier in the week among a group of producers that have acted in relative concert for months, agreeing to cut production deeply to stabilize oil markets.” The coronavirus pandemic placed heavy downward pressure on prices as global demand eroded early this year. The cuts throughout the year have dealt heavy blows to non-state oil majors, among them Exxon Mobil Corp., and Royal Dutch Shell PLC, triggering big losses and job cuts. Shell and BP PLC both recently cut their dividend for the first time in years to preserve cash. Chevron Corp. on Thursday said it was joining peers in slashing spending, the WSJ said.
Optimism over the reported efficacy of Coronavirus vaccines and their availability as soon as this month sent oil prices higher in November. Then, several producers started questioning the need to keep deep cuts in place, as advocated by OPEC leader Saudi Arabia.
OPEC+ sources told Reuters that Russia, Iraq, Nigeria and the United Arab Emirates have all to a certain extent expressed interest in supplying the market with more oil in 2021.
“This is a good decision as it allows us to stop and pause and review what needs to be done in order not to hurt the market,” Russian Deputy Prime Minister Alexander Novak said, adding that the group would meet monthly now to decide on prices. But Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, expressed frustration at the deliberations and differences between members, according to Reuters.
“It is very excruciating, tiring and frustrating… For two or three days I threw in the towel, but the towel comes back to me,” said Prince Abdulaziz.
