The OPEC+ alliance will gradually add two million barrels per day by 2021
The OPEC+ (OPEC and allies, including Russia) will increase its crude oil production by up to two million barrels per day (mbd) gradually, in 2021, at a maximum of 0.5 mbd per month, a measure that may be readjusted each month according to market conditions.
This is the decision adopted this Thursday by the OPEC+ alliance (the Organisation of Petroleum Exporting Countries and its allies) after four days of arduous telematic negotiations.
The group achieved consensus with a compromise between those who, like Saudi Arabia, were asking for the current cut of 7.7 mbd -8 % of world production- to be maintained unchanged in the coming months and others who wanted the initially envisaged increase of 1.9 mbd.
This increase was agreed in April, as the third and final stage of the huge cutback with which producers reacted to the collapse of energy consumption and oil prices following the coronavirus crisis.
As a first step, the collective cuts in crude oil production will be reduced from 7.7 million barrels per day to 7.2 million barrels per day, said Russia's deputy prime minister and former energy minister, Alexander Novak, at an online press conference.
He explained that, in addition, it was agreed that those countries that have not fully complied with their part of the cut will have to withdraw the barrels they over-pumped from the market before the end of March, which will de facto reduce the volume of the total increase.
Three OPEC partners - Venezuela, Iran and Libya - are exempt from the commitment to reduce their withdrawals for various reasons, including sanctions, crises and armed conflicts.
"We understand that two mbd (of increase) today, in the winter season and with low demand, would be dangerous for the market," Novak said. He considered it "difficult" at this time "to predict when the oil market will recover from the measures against COVID" imposed to mitigate the second wave of the pandemic.
For his part, the Saudi energy minister, Abdelaziz bin Salman, estimated that the new confinements in Europe and the United States to halt the second wave of the pandemic "are not damaging demand as profoundly as in the first wave".
The group of 23 countries opted for extreme vigilance and caution by agreeing to review the situation monthly, to eventually readjust the levels of withdrawals. "We will hold monthly meetings at the beginning of each month in January, February and March, to decide on the next adjustment (...) in order to be more precise," Novak stressed. "It means that adjustments can go either way," he added.
Bin Salman stressed the need to keep a close eye on the market in the face of the "uncertainty" it faces. If on the one hand the pandemic continues to wreak havoc, on the other hand the development of several vaccines means that a recovery can be expected. He warned, however, that the vaccination process may be a long one, allowing a return to the pre-pandemic life.
Driven by the development of vaccines against COVID and the economic recovery in Asia, oil has appreciated in recent days to a level not seen since last March, when the pandemic began. Brent's barrel, the benchmark in Europe, is over $48, and that of Texas intermediate oil (WTI), the benchmark in the United States, is around $45.
According to the Iranian oil minister, Biyan Zanganeh, the latest decision should not have much impact on these prices, which are more or less halfway between the April lows and the level of the beginning of the year. The increase "will not significantly influence the oil market in terms of lowering prices, as 500,000 barrels is not a large quantity", said Zanganeh, quoted by the Persian agency Shana, which is dependent on his portfolio, after describing the measure adopted as "reasonable".
