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Summary
- Saudi Arabia has unilaterally decided to cut production up to 1 million barrels per day to support crude oil prices.
- Growing cases of new coronavirus strains in different parts of the world are rising concerns among oil producers.
- Russia and Kazakhstan would increase their production share by a total of 75,000 barrels per day.
The oil producer group OPEC+ concluded a meeting over oil production levels in coming months on Tuesday, 5 January 2021. The resurgence of new strains of COVID-19 virus in different parts of the world is spooking oil producers. In a recent development, the United Kingdom went under phase 3 lockdown.
Crude oil price movement (Image Source: Eikon Refinitiv)
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To ease the pressure on crude oil prices, OPEC+ has decided to keep the production rate flat. The 13-member oil cartel has cut the production by 10 million barrels per day since the beginning of the pandemic.
Image Source - ©Kalkine Group 2020
The cases of rising infections, lockdowns and restrictions in many countries along with growing uncertainties over economic recovery are expected to drive the demand for oil in the downward trajectory. In order to boost the oil prices amidst many uncertainties, Saudi Arabia took a unilateral decision to cut its share of production by one million barrels per day in coming months.
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The Brent Crude jumped nearly 5% and crossed the US$53 mark. The U.S.A basket- WTI crossed the US$50 mark as a response to the production cut news. This is the first time since February 2020 that the oil price surpassed the US$50 mark.
Image Source - ©Kalkine Group 2020
Russia and Kazakhstan to Increase the Production
Russia has been giving signals that it wanted to increase its crude oil production for a few months. The indication seems to be in the wake of losing its market share. Meanwhile, the United States is pushing its shale oil to new territories and markets.
During Tuesday’s meeting, an agreement was reached to keep the production almost flat and a modest addition of 75,000 barrels per day of oil in current production levels by Russia and Kazakhstan.
OPEC+ has been able to add 2.5 million barrels per day of crude oil so far after it imposed production cuts at the beginning of the pandemic.
The production cut decision by Saudi Arabia is also being seen as losing its influence in the 13-member organisation and growing stature of Russia. Iraq, Nigeria, and other group members have asked for concessions in production cuts due to their dwindling economies but were most of the time rejected.
The next meeting of OPEC+ is scheduled in February 2021. The decision for production levels for April and coming months is expected during the next meeting.
