Spanish – Finally, there was consensus among OPEC+ member countries on oil production for February and March, an agreement that will weigh more heavily on the shoulders of Saudi Arabia, which will cut its production by one million barrels a day over the next two months.
On the other hand, Russia and Kazakhstan will increase their production by 65,000 and 10,000 barrels a day, respectively. The decision took two days for the group that controls 60% of the world’s oil production.
The lack of consensus had the oil market in suspense since the decision could mean a noose around its neck due to the fragility of demand due to the pandemic. The confinement and the lack of mobilization hit the world demand for crude oil in an unprecedented way. The effects were notable in the price of the barrel.
A day earlier, the majority of the group had advocated keeping the current level of cut, which stood at 7.2 million barrels per day (mbd) from January, unchanged due to the second wave of the virus, which was exacerbated by the new strain detected in the UK.
Initially, the countries had agreed to reduce the cut by 500,000 barrels per day by February, but they had to put the brakes on because of the global context and take a new route. Therefore, after hours of virtual meetings, the cut will be maintained, and Saudi Arabia “will make a voluntary (production) cut in February and March, of one million barrels per day.”
The Saudi move
Saudi Arabia, the world’s largest exporter of crude oil, made a similar cut in May last year because of the same pandemic-related issue, to the point that the level of production was the lowest in 18 years.
But more than a sacrifice, the new Saudi move is a strategy to keep the price of oil from falling to deplorable levels. Not only for them but for the rest of the world.
The goal is to stabilize the oil market since low barrel prices force the kingdom of that country to impose deep spending cuts and triple the value-added tax, a Bloomberg article indicates.
“Our production will be around 8.25 million barrels per day (mbd), effective from February 1st until the end of March,” announced the Saudi energy minister, Abdelaziz bin Salman, after concluding the recent OPEC+ meeting.
Then, although the other member countries -except Russia and Kazakhstan- would maintain their current crude oil production. The Saudi nation will make a significant cut that also benefits its economy.
Once the decision was announced, the price of crude oil rebounded. The price of the Brent crude barrel, a European metric, rose by 4.91%, or 2.51 dollars, to end at 53.60 dollars; while the Texas intermediate oil (WTI), a US metric, rose by 4.85%, equivalent to 2.31 dollars, and closed at 49.93 dollars.
Warnings on the table
On the other hand, Russia and Kazakhstan will slightly increase their production. Since the meetings that began two days ago, they have been firm in their speeches about increasing production, relying on the vaccination that began in almost the entire world.
Both nations will be able to produce more oil without risking the price of oil due to the cut that Saudi Arabia is going to carry out in its pumping.
Kazakhstan committed to OPEC+ to produce 1.42 million barrels per day (mbd) in February and March, and Russia will produce 9.18 mbd in February and 9.24 mbd in March, reported EFE.
But not everything has been said; there are still warnings that producing countries must take into account. The dizzying increase in cases caused by new mutations in COVID-19 is a determining factor for the second quarter of the year.
In this regard, Mohamed bin Salman, who served as president of the OPEC+ conference, warned to be cautious about the risks of falling demand that the organization sees in the oil market and the scenarios imposed by the new strains, which spread faster than the original virus. The next meeting was scheduled for March 4.