Opec+ Reaches Compromise

Opec+ agreed on December 3 to raise oil production by 500,000 barrels/day in January, despite earlier expectations that the group would hold off on any supply increases in light of stalling demand growth.

The deal, reached after a tense round of talks, represents a compromise between those members of the cartel that had wanted to maintain current cuts for longer and those who wanted to more closely follow the original plan, which was to bring 1.9mn b/d of output back online in the new year.

The Opec+ meeting was originally scheduled to take place on December 1 but was delayed by two days after talks among Opec members on November 30 failed to reach a consensus on policy next year. Reports suggest Saudi Arabia was in favour of delaying the easing of cuts, whereas Russia and the UAE felt differently. 

Under the agreement, confirmed by Opec in a statement, the group will hold monthly ministerial meetings in the new year to discuss whether to bring back more supply. The maximum they will restore in any one month will be 500,000 b/d, Opec said.

"This week's compromise reflects a determination to avoid a repeat of the price war in March and April this year," Wood Mackenzie's vice president Ann-Louise Hittle said. "This compromise agreement, if continued through February and March by adding 0.5mn b/d to each of these months on top of the previous month's increase, leads to an oversupply of 1.6mn b/d for Q1 2021."

WoodMac expects Brent to hold a floor near to $40/d in January and average at least $45/b during the month thanks to the agreement.

"By only agreeing upon January's production levels, the alliance now has some time to see if vaccinations will ease the oil demand destruction and speed up the recovery," Rystad Energy's senior oil analyst Paola Rodriguez Masiu said.

Brent futures are currently trading at $49.63/b, versus $48.71 at the end of trading on December 3, whereas West Texas Intermediate is at $46.27/b, up from $45.71.