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The organization of Petroleum Exporting Countries (OPEC) and Russia agreed on Thursday to slightly increase crude oil production by 500000 barrels per day from January next year, but failed to reach a compromise on broader and longer-term policies for the rest of next year.
This means that the OPEC group, which is composed of OPEC and Russia, will reduce production by 7.2 million barrels / day from January next year, accounting for 7.7 million barrels / day of global demand.
The implementation of novel coronavirus pneumonia aims to tackle the weak oil demand caused by the outbreak of the second wave of new crown pneumonia.
The market had expected OPEC to extend its existing production reduction measures until at least March next year.
However, after the rapid approval of the new crown vaccine, hoping to stimulate the rise in oil prices at the end of November, some oil producing countries began to question whether it was necessary to exercise such strict control over oil policy as Saudi Arabia, the OPEC leader, advocated.
OPEC sources have previously said that Russia, Iraq, Nigeria and the United Arab Emirates have expressed some interest in increasing oil supply in 2021.
Russia’s Deputy Prime Minister Novak said OPEC will hold a meeting every month from January next year to decide on oil production policy, and the monthly increase in production will not exceed 500000 barrels / day.
“It’s a good decision because it allows us to stop and rethink what we need to do in order not to hurt the market,” NOAK said
He said the compensatory cut-off period for countries that had overproduced in the previous months had been extended to March 20201.
Saudi energy minister Abdel Aziz said the meeting was difficult because of differences among many member states.
OPEC must strike a delicate balance between pushing up oil prices to help its budget, but not so high as to stimulate us shale oil production.
When oil prices rise above $50 a barrel, it usually stimulates the expansion of shale oil production in the United States. Oil prices are now around $48.
OPEC’s monthly meeting will make price volatility more volatile and complicate hedging by US oil producers.
Gary Ross, co-founder of BLACKGOLD investors, said: “we’ve seen some hedging operations, but there hasn’t been a rush. As prices rise, hedging will increase. ”
“We still don’t know what will happen to Iran and Venezuela’s oil supply after the inauguration of new US President Biden. As a result, there is clearly some risk of oversupply, “Ross said.