After days of disagreement, the Organization of the Petroleum Exporting Countries (OPEC) and a group of Russia-led oil producers finally agreed to increase output by 500,000 barrels a day next month, the Wall Street Journal first reported Thursday—a modest uptick that’s intended to help prop up oil prices as producers and investors plan for rising demand driven by positive vaccine news.
Ending a bitter output standoff that threatened to disband OPEC from its allies, the compromise is just a quarter of what the cartel originally planned for, but it avoids a full-on three-month delay that industry observers expected, Bloomberg reported.
OPEC originally planned to decide the output goals on Monday, but differences between countries forced the cartel to postpone the decision until Thursday; chief among concerns was that Saudi Arabia and the United Arab Emirates wanted overproducing countries like Russia and Iraq to lower their output more in the first quarter, delegates told the Wall Street Journal.
Producers have looked to ramp up supply as vaccine optimism helps drive oil prices up to a seven-month high after excess inventories drove prices down to negative territory at the height of pandemic uncertainty in the spring.
The modest output increase boosts the current limit of 7.7 million barrels per day (from peak levels before the pandemic of 9.2 million barrels per day) and should help boost supply in anticipation of heightened demand while keeping inventory levels moderated to avoid another oil price disaster.
Still, industry observers have cautioned over the outlook for oil: “Vaccines are unlikely to significantly boost demand until well into next year,” the International Energy Agency said in mid-November, also noting that new lockdown measures in response to the current coronavirus surge have “significantly” depressed global demand.
The price of West Texas Intermediate crude jumped 1% after the report, while the price of international benchmark Brent Crude climbed 1.1%.
In March, an all-out price war between oil-producing giants Russia and Saudi Arabia rocked global markets just as demand began to plummet during the coronavirus outbreak, and on April 20, the price of one American oil futures contract plunged into negative territory for the first time in history as costly-to-maintain storage tanks filled up. OPEC and its allies agreed to cut production in order to stabilize prices amid the turmoil, but the IEA still forecasts oil revenues will be at their lowest in 18 years.
“It’s very excruciating, it’s very tiring, it’s sometimes very frustrating,” Saudi Energy Minister Abdulaziz bin Salman said of the negotiations, adding that the oil market is finally seeing ‘light at the end of the tunnel.”
WTI and Brent crude oil prices are up 21% and 22%, respectively, in the past month, but they’re still about 25% lower than pre-pandemic levels.
OPEC, Allies Agree to Increase Output by 500,000 Barrels a Day in January (WSJ)
A Flood Of Saudi Oil Is Headed For The United States. Here’s What That Means For Struggling American Producers. (Forbes)
Here’s What Negative Oil Prices Really Mean (Forbes)