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Summary
- Saudi Arabia announced at the beginning of January to cut the production of crude oil by 1 Mbbl/day to strengthen the crude oil prices.
- The latest announcement by Iraq to cut the oil output to 3.6 Mbbl/ day and the possibility of the U.S.A to cut down the shale oil production will create a gap between the demand and supply.
- The Brent crude was trading at US$56.31 with a minor gain of 0.7% on 27 January 2021.
Iraq produced at an average of 3.821 Mbbl/day throughout the last quarter of 2020 as per the OPEC January MOMR data. To make up for the extra production than the decided quota, Iraq has announced a production cut of 25,000 bbls per day of crude oil in order to extend the support to the crude oil prices.
For Market Insight: What does 2021 hold for Crude Oil?
Crude oil price movement (Image Source: Eikon Refinitiv)
During the last round of the OPEC+ meeting on 05 January 2021, the oil-producing group decided to keep the production level of the November-December levels. Iraq earlier did not follow the “Declaration of Cooperation” and produced more than the assigned quota.
The deteriorating economic condition and excess dependence on crude oil were the reasons cited by Iraq for producing beyond the quota.
Iraq has also said in the announcement that meeting the production cut targets depends on the Kurdistan Regional Government. It has stated its inability to control the region and impose the production cut decision.
Saudi Arabia’s unilateral decision
The thirteen-member oil cartel had reduced production of around 10Mbbl/day since the outbreak of the pandemic.
Image Source - © Kalkine Group 2020
After several months of production cut, Russia is indicating that it wants to increase its market share and oil revenue. Iraq and Nigeria were already not adhering to the production cut decision of the OPEC+ members.
During the 5 January 2021 meeting, Russia and Kazakhstan were allowed to increase their production by 75,000 bbl per day for the coming months. In an unprecedented turn of an event, Saudi Arabia, the largest producer among the OPEC members, announced the production cut by one million barrels per day till the next official meeting of the OPEC+ members.
Joe Biden’s war on climate change
Hours after taking office, President-elect Joe Biden pledged the U.S.A to the Paris Agreement on climate change. The new government is going to sign an executive order to ban new drilling on federal land and water.
There is also a possibility that the government may ban shale oil exploration and production projects.
So much of oil production out from the supply system might help the oil market to see better days ahead.
Image Source - © Kalkine Group 2020
On 28 January 2021, the Brent crude was trading at US$55.48 per barrel. The next OPEC meeting is scheduled in February 2021. The stand of Russia and Saudi Arabia on production output will decide the future price of crude oil.
