Members of the Organization of the Petroleum Exporting Countries (OPEC) have reached consensus about the need to extend by three months, starting January 2021, oil production cuts, Algeria’s minister confirmed this Monday.
Now, the task is to convince their allies on a second level, known as OPEC+, in which Russia stands, to support such a move, without breaking the fragile market balance or giving the United States space to increase their output.
“There is consensus at the OPEC level on extending the current 7.7 million barrels per day cuts until the end of March,” said Abdelmadjid Attar, Energy Minister of Algeria and current president of OPEC, according to Algeria’s news media agency.
Previous talks were held on Sunday, but they failed to reach consensus. As reported by Reuters, OPEC’s allies, including Russia, don’t agree on the cuts of production; instead, they plead to increase output gradually from January.
However, Kremlin spokesperson Dmitry Peskov, quoted by Reuters, said differences between Russia and the Organization are not severe; that president Vladimir Putin is not going to call Saudi Arabia’s leadership before Tuesday, when they’ll hold a new meeting.
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This move has eased disagreements in the past.
OPEC has a delicate task
“The Organization will probably agree to extend the current production ceiling for the first quarter of 2021, if the non-OPEC countries agree with it in Tuesday’s meeting,” an OPEC source said, quoted by Reuters.
The existing production cuts of 2 million barrels per day was supposed to end in January; but with demand still under pressure, as the pandemic strikes once again in Europe and the Americas, the possibility of extending the cuts was being considered since the third quarter of 2020.
Saudi Arabia agrees with it, Russia and allies do not; the task is not easy as they have to find a delicate balance between pushing up production and prices in favor of their budgets, but not as much to oversupply the market and crash it.
In the way, there’s the United States output surging mainly because of shale. U.S. production tends to rise when prices of crude oil rise above $50 per barrel. On top of this, Moscow’s finances can tolerate lower oil prices in contrast with Saudi Arabia.
As we reported earlier this month, oil prices had a rally on covid-19 vaccine hopes, and the expectations of OPEC extending their cuts to March. If they fail to do that, prices could fall as much as 10%, according to Deutsche Bank.