The Organization of Petroleum Exporting Countries, OPEC+, and its allies are working in an oil production deal for 2021, after earlier talks of this week failed to meet consensus.
The aim is whether to extend existing production cuts to March, or even May, 2021, or establishing an escalated rise in output starting on January 2021. On late 2020, it was widely expected that OPEC would extend the existing production cuts, around 7,7 million barrels a day, into 2021.
Nevertheless, after vaccine developments and a wave of optimism that followed the vaccine’s efficacy news, a rally took on oil and prices were up. Now, keeping such tight measure for oil production seems unclear, as demand is expected to grow with a speedy recovery.
According to Reuter’s sources, Russia, Iraq, Nigeria and the United Arab Emirates are all interested in supplying more oil in 2021. “Things are heading towards a compromise,” said one OPEC delegate before today’s meeting started, almost 2 hours behind schedule, at 2pm Vienna’s time.
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Sources quoted by Reuters confirm that the preferred option is to extend present cuts into January, and then monthly increasing production by 0,5 million barrels per day, or maybe 1 million barrels per day.
“The view was also confirmed by Iranian oil minister Bijan Zanganeh, who spoke to local Iranian media,” the news media says.
As we’ve discussed previously, the decision of extending cuts to March, or May, was backed by the United Arab Emirates, and OPEC’s first block; second block, or the allies block (OPEC+) were Russia stands, was advocate for rising output gradually from January.
However, the Organization has to strike a delicate balance between pushing oil prices enough to meet their demands, but not so much to help rival U.S. shale rise. Also, there’s a substantial economic difference between the members. As some, like Russia, can tolerate lower prices of crude.
According to some experts, a failure to agree “could jeopardize the future of the coalition and potentially lead to another bruising price war. But traders appear to believe that a cut extension is the likeliest outcome, sending crude prices back up to their highest since the first week of March,” says S&P Global.