Opec and Russia have struck a cautious deal to boost oil supply from January, as producer countries seek to release more barrels into the market despite new waves of coronavirus persistently weighing on demand.
Producers agreed to raise output by 500,000 barrels a day in January, according to delegates, far below the 2m b/d initially agreed. From the start of 2021, production levels will be decided at monthly ministerial meetings.
The meeting of oil ministers began on Thursday, two days after it was initially scheduled, with key countries in the Opec+ group — which includes the cartel and Russia — at loggerheads over whether to taper the production cuts in January as initially agreed.
After a historic crash in oil prices when the pandemic gripped western economies in March, Opec and its allies were initially unable to concoct a response, instead launching a price war that flooded the global market.
But by April, the 23-member group agreed to cut production by a record 9.7m barrels a day — close to 10 per cent of global supply. The curbs have since fallen to 7.7m b/d, and were due to drop further in January, meaning additional oil would be released in to an already fragile market.
Iran’s oil minister Bijan Namdar Zanganeh told local press ahead of the meeting that ministers were working towards a compromise and Opec+ was likely to approve a more gradual output increase of 500,000 b/d each month.
Brent crude has rebounded to more than $45 a barrel after news of the rollout of vaccines fuelled a market rally last month. Still, governments in Europe have imposed new restrictions to curb the spread of the virus while the US continues to report higher levels of deaths, damping the optimism among some delegates.
Ahead of this week, Saudi Arabia, Opec’s largest producer, had sought to extend the current level of cuts, at 7.7m b/d, for a further three months as a preventive measure. But Russia — the kingdom’s main partner in the alliance — sought to stick with the plan to ease cuts from January.
The United Arab Emirates, Saudi Arabia’s traditional Gulf ally, has also pushed for stricter quotas on other countries who have not fulfilled their share of cuts this year.
Although the plan being discussed is not as severe as a full three-month delay of the tapering plan, a smaller production raise is seen as a halfway house that would hold together an alliance that has begun to show cracks in unity despite its effectiveness in bolstering oil prices.
“Negotiations within the Opec+ group did not prove to be as smooth as expected,” said Bjornar Tonhaugen at Rystad Energy ahead of Thursday’s meeting, which began two hours later than anticipated.
Government-imposed lockdowns and travel bans this year have hit travel and trade, causing oil demand to collapse. Brent crude, the international oil benchmark, rose 0.8 per cent to $48.68 a barrel on Thursday by late afternoon trading in London.