JOIN USSaudi Arabia will cut its oil production, allowing Russia’s to grow
OPEC, Russia and other oil major producers reached an unusual agreement on production quotas on Tuesday, with Saudi Arabia committing to reducing its oil production by 1 million barrels a day and Russia and Kazakhstan winning relatively modest production increases.
The effect will be an overall reduction in oil production. The news pushed prices up more than 4%, reaching levels not seen since February. Brent crude rose past $53 a barrel, and West Texas Intermediate exceeded $50 as traders welcomed the Saudi willingness to give up some barrels in an effort to stabilize the market.
The difficulty in reaching consensus at the meeting of the OPEC Plus group appeared to show that cooperation between Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, and Russia is once again under considerable strain. That tension could be a harbinger of difficulties in restraining production in the coming months.
Finding that they were unable to head off Russia’s demand for a production increase, Saudi Arabia appears to have largely given in to preserve at least a semblance of unity.
“Instead of letting everything fall apart, the Saudis let the Russians have what they want,” said Bhushan Bahree, an executive director at IHS Markit, a research firm.
Russia will now be permitted to raise production by 65,000 barrels a day in February and by another 65,000 a day in March, bringing output to over 9.2 million barrels a day.
At the same time, to prop up the market, the Saudis volunteered to cut production by 1 million barrels a day — the equivalent of about 1% of world supply — to about 8.1 million barrels a day. That pledge came late and was not reflected in quota numbers published by OPEC after the meeting. The Saudis had been producing more than 11 million barrels a day at the peak of a price war with Russia last spring.
The Saudis and other OPEC countries remain worried about the outlook for their oil. OPEC Plus released a statement after the meeting, noting the “shocking impact of the COVID-19 pandemic on the world economy and markets.”
“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,” the statement said.