Saudi Arabia, Russia and other oil producing countries agree to start preliminary production increases next month, despite coronavirus pandemic continuing to cloud fuel demand prospects.
The Organization of Black Gold Exporting Countries said on Thursday that existing production restrictions will be slightly eased from January 1 by members of the OPEC alliance.+.
«Starting in January 2021, the [OPEC +] member countries have decided to voluntarily adjust production by increasing it by 0.5 million barrels per day», – said in a statement.
«This is not the worst scenario that the market feared, but not what we expected a couple of weeks ago. The segment is now responding positively and prices are showing a slight increase», – said senior analyst at Rystad Energy for oil markets Paola rodriguez maciu.
Traders expected the alliance between OPEC and other major producers to agree to extend existing cuts by three months. Brent crude futures rose 27% in November to their highest level since March, helped by Coronavirus Vaccine Developments Improving Oil Demand Outlook.
OPEC and its allies were originally scheduled to meet on Tuesday, but the meeting was postponed as OPEC members reportedly met in a private order to agree on further actions.
The main supporter of maintaining the current level of reductions until the end of the first quarter was Saudi Arabia, the leader of OPEC. However, some producers questioned this approach after the prolonged rise in oil prices last month..
Analysts believe that some non-OPEC allies, such as Russia and Kazakhstan, are calling for a gradual increase in production restrictions, while the United Arab Emirates allegedly does not share this position..
Speculation of a split between Saudi Arabia and the UAE earlier this week came as a surprise to some due to the UAE’s status in OPEC. It is the group’s third largest producer and a close ally of Saudi Arabia in the Persian Gulf..
Alliance cut production in May and June by 9.7 million barrels a day, or about 10% of global production, after coronavirus restrictions and travel bans suppressed demand and sent the price of Brent crude below $ 20 a barrel in April.
These restrictions were eased in August and the group planned to increase supplies by an additional 2 million barrels per day from January 2021..
However, a second wave of lockdowns in parts of Europe and the United States inflicted new blow on demand, knocking down oil prices again and prompting producers and the International Energy Agency cut demand forecasts for this year and the beginning of the next.
Promising news of multiple candidates for the Covid-19 vaccine has pushed up black gold prices in recent weeks as traders bet the vaccine will spur economic activity and encourage people to return to travel..
Increasing oil demand in Asia and easing political uncertainty in the US also fueled positive expectations, said Hussein sayed, Chief Market Strategist FXTM.
But in the short term, the situation remains unfavorable for fuel prices, given the continued oversupply and weak global demand..
«Cost will remain at current levels as long as planes, trains and cars are used again at pre-crisis levels and vaccinations «will not start to rebuild the global economy», – said Stephen innes, Chief Global Markets Strategist Axi.