OPEC, Russia and other oil producers reached an agreement on Tuesday that included Saudi Arabia’s pledge to cut oil production by one million barrels a day in February and March – a cut of more than 10 percent from the daily target in January Russia and Kazakhstan posted relatively modest increases.
The overall effect will be a decrease in oil production, which has brought prices to levels not seen since February.
Traders, who feared the group might agree to a hike, pushed prices down more than 4 percent for the day. Brent crude exceeded $ 53 a barrel and West Texas Intermediate topped $ 50 a barrel.
Essentially, Saudi Arabia and Russia, the two main producers of the OPEC Plus group, appear to have agreed not to agree. Russian officials wanted production to increase, arguing that a cut by OPEC and its allies risks losing market share to shale oil producers in the United States. The Saudis cautioned that the pandemic was far from under control.
The big producers couldn’t agree on Monday and reached a compromise on Tuesday.
Saudi Arabia and Russia have recently been in lockstep with identical production quotas. But that wasn’t the case last spring when the two disagreed on oil production, sparking a major price war. Faced with falling oil demand in the first wave of the pandemic, Saudi Arabia and other producers tried to force Russia to agree to a sharp production cut. When Russia objected, the Saudis increased production, causing panic among traders in April that eventually resulted in the West Texas Intermediate price going negative.
This time, both sides could agree to go in different directions.
Russia is now allowed to increase production by 65,000 barrels a day in February and a further 65,000 barrels a day in March.
“Instead of letting it all fall apart, the Saudis let the Russians have what they want,” said Bhushan Bahree, executive director at IHS Markit, a research company.
At the same time, the Saudis volunteered to cut around 1 percent of world supply. That cut of one million barrels a day would be a reduction from the Kingdom’s goal of about 9.1 million barrels a day.
“It was a local idea,” said Saudi Oil Minister Prince Abdulaziz bin Salman during a press conference after the meeting. The prince who chaired the meeting said Saudi Arabia was making a “goodwill” gesture.
After the meeting, OPEC released a statement in which it noted the “shocking effects of the Covid-19 pandemic on the global 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 continue through 2021,” it said.