Russia, Kazakhstan To Increase Oil Output Following OPEC+ Meeting

Daniel Fowler
January 9, 2021

On 5 January, Saudi Arabia agreed to make extra voluntary oil production cuts of one million barrels per day (Mbpd) in February and March, following a meeting with OPEC+.

This was the highest price of the commodity since February 25, when the price was $54.95. It was at $53.87 a barrel at 0536 GMT after jumping 4.9% on Tuesday. U.S. West Texas Intermediate crude rose $2.27, or 4.8%, to $49.89 a barrel. The contract closed up 0.4% on Thursday after also hitting its highest since February at $51.28.

Saudi Arabia's unilateral supply cuts clearly showcases Riyadh's preference for higher Oil prices, although other producers prioritize retaining market share. Apart from this, another reason for the gains in crude oil could be attributed to the upbeat U.S. crude oil supply data from the American Petroleum Institute, which showed a draw of 1.663 million barrels.

Other OPEC members are not joining Saudi Arabia in the production cuts and some countries are even planning to boost output. The rest of the group will hold output steady.

Likewise, Brent Oil, which is the global benchmark, reached its highest levels since February on the news.

The deal - under which most producers will hold output steady - followed two days of talks by OPEC+, which groups OPEC and others including Russian Federation.

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But the surprise cut has stabilised Brent prices at more than $50 per barrel, and deepened the backwardation in the futures market, with the sharpest price increases for deliveries in the first and second quarters of the year.

Though OPEC remains cautious about the coronavirus pandemic straining the global economy further, Nogayev said the joint efforts of countries, which committed to the largest oil cut under the OPEC agreement in April 2019, allowed for the stabilizing of global oil prices and continued to have a positive impact on the oil industry.

Across the ocean, the upticks in the crude oil prices could also be associated with the renewed optimism over potential vaccines for the highly infectious coronavirus.

The group will meet monthly to review demand and adjust output as needed, with an eye to supporting prices around current levels.

In December, Opec+ chose to increase production by 0.5 million bpd from January as part of a 2 million bpd gradual rise this year, but many members have questioned the need for a further boost due to spreading coronavirus infections.

US fuel inventories rose last week, with gasoline stocks increasing by 4.5 million barrels, the biggest increase since April, the Energy Information Administration said on Wednesday.

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