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Summary
- OPEC+ has agreed to raise production by 500,000 barrels per day, starting in January.
- The conclusion came after rigorous discussions in a meeting.
- The oil-producing cartel was generally expected to continue production cuts of 7.7Mbpd till March.
In a significant move, OPEC and non-OPEC allies have agreed to raise their oil production starting January, after a meeting on 3 December 2020. The decision came after days of marathon discussions, which were focused on building accord over how to tackle weak demand amidst a new wave of COVID-19.
OPEC+, which comprises 13 OPEC and ten non-OPEC oil & gas producer giants, will increase production by 500,000 barrels a day in January, according to the agreement. This would bring the production cut to 7.2 million bpd. This increment of less than 1 per cent of the global oil market is set, keeping in mind the pressurised demand amidst COVID 19.
It is well known that the oil market is one of the significant contributors to the global economy. The cost of crude oil has dropped down drastically due to the onslaught of a novel Coronavirus which originated in December 2019 in China.
The pandemic forced nations across the world to impose lockdowns. People across the countries like Italy, Germany, India, the U.K., South Africa, Morocco, and Spain were forced to "remain at home" and avoid unnecessary movement, consequently causing the oil demand to nosedive.
The global demand for various petroleum products continues to plummet due to a decline in tourism, business trips, a drop in domestic transportation and shifts in health care which is futher affecting demand in the global oil market.
Must Read: OPEC and Allies Ease Supply Cuts, Market Goes Range-Bound; Things You Should Know
Image Source Shutterstock
The decision on the raised production was widely welcomed by many members. It was believed that OPEC+ will extend the current production cut of 7.7 million bpd through at least March and because of this, talks were suspended on 1 December because of a decision impasse reached among the OPEC and non-OPEC members.
However, a gradual increase in production was mutually agreed amongst OPEC+ members. Previously, from May a production cut of 9.7 million bpd was incorporated which later was revised to 7.7 million bpd during August after the Joint Ministerial Monitoring Committee (JMMC) advises OPEC+.
Interesting Read: OPEC+ Delays Production Cut Decision, November Rally Halts
Source Shutterstock
Decision After-effects
As per OPEC secretariat calculations, the price of OPEC basket of thirteen crudes stood at $47.46 on 3 December 2020, the day when the decision was finalised. The prices further rose to $48.35 on 4 December 2020.
OPEC Secretary General HE Mohammad Sanusi Barkindo participated in the 2020 Nigeria Oil and Gas Conference on 8 December 2020 and praised the decisions taken at the 12th OPEC and non-OPEC Ministerial Meeting. Barkindo also welcomed the recent developments regarding COVID-19 vaccines, praising the preparations that are underway for widespread delivery of COVID-19 vaccines.
Non-OPEC member Oman on 5 December 2020 also welcomed the decision of OPEC+ and agreed to cut production by 150,000 bpd in January 2021, compared with 120,000 bpd presently in line with the commitments under the April agreement. Oman Crude popped up to $49.41 per barrel on the Dubai Mercantile Exchange (DME) just after the decision on 3 December 2020, a level previously seen on March 6, 2020.
Price Watch:
Among major crude oil benchmarks, West Texas Intermediate for December contract was trading at $45.52 with a low of 0.18 per cent a barrel, as on 04:48 AM CST on 9 December 2020. Brent for December settlement was trading at $48.73 with a low of 0.23 per cent, as on 04:48 AM CST on 9 December 2020.
