OPEC+ to start modest production increase in January
After difficult and protracted negotiations, the enlarged alliance of oil-producing countries known as OPEC+ decided to start increasing crude production in January. However, the increase will be more moderate than previously expected.
The OPEC+ group reached a compromise on a modest production increase on 3 December, but the talks have revealed strains in the group, reports The New York Times. OPEC and other oil-producing nations agreed to increase production by 500,000 bpd, which amounts to less than 1% of the global oil consumption, in January. The increase comes amid weak demand, which is still under pressure from the impact of the COVID-19 pandemic.
The decision became a compromise between countries that wanted to proceed with a much larger increase of two million bpd, which had been agreed upon at an earlier meeting, and others that preferred to maintain current production cuts of 7,7 million bpd. Reaching an agreement was surprisingly difficult, so the final meeting had been delayed for two days, as officials struggled to reach a consensus.
The talks revealed tensions within the group. The recent news about the efficacy of vaccines against COVID-19 has caused oil prices to climb to their highest levels since April. Those higher prices encouraged some oil producers, who see less need to keep supplies tight and want to increase pumping to compensate for almost a year of low incomes. “As prices rise, the willingness to restrain supplies withers,” said Executive Director at IHS Markit Bhushan Bahree.
It is noteworthy that the United Arab Emirates (UAE), long the closest ally of OPEC’s kingpin Saudi Arabia, turned out to be difficult to convince. The UAE doesn’t support the necessity of a tight quota that interferes their plans to substantially increase oil production. Besides, analysts say that the country’s leaders are irritated by the Saudi-Russian domination of oil decision-making in recent years. According to analysts, the third-largest producer in OPEC after Saudi Arabia and Iraq may be considering going its own way in oil matters. “They don’t want to be sidelined and just be a follower,” said Founder and Director of Research at Energy Aspects Amrita Sen.
On 30 November, Saudi Minister of Energy Prince Abdulaziz bin Salman offered to resign as the chairman of the OPEC+ meetings due to the difficulty of forging a consensus. However, he agreed to stay on after but his counterparts urged him to continue leading the committee as well as OPEC+ meetings and named his efforts “highly appreciated”.
The group eyes increasing production by a similar amount in the following months. OPEC+ will hold monthly meetings to consider further adjustments.