The Organisation of Petroleum Exporting Countries (OPEC) on Tuesday upheld its December 3, 2020 decision to increase crude oil production output by 500,000 barrels per day for February and March, 2021.
The implementation on the contrary will see Nigeria cut production by an additional 939,000 barrels in adherence to the resolution, with reference production set for the country by OPEC put at 1.829 million barrels per day in January, February and March.
But the required production per month will be 1,516 million barrels per day, a reduction of 313,000 barrels per day for each of the months.
The document also showed that Russia and Saudi Arabia have a reference production of 11 million barrels per day respectively, but will only be allowed to pump 9.1 million bpd for the period under review.
But Saudi Arabia’s late announcement after the meeting sent oil prices soaring—that Saudi Arabia would voluntarily cut an additional 1 million barrels per day in February and March above its current quota—all while OPEC’s allies get to ramp up production.
OPEC has directed its members and allies that have not fully complied with the output cuts consented in April when the prices of some grades of oil in the international market became negative, to submit a compensation plan by January 15.
Tuesday’s decisions came after an intense two-day meeting of the OPEC+ on whether or not to stick with the plan of returning another 500,000 barrels per day of production to the market in view of fresh lockdowns amid the coronavirus surge.
The cartel however failed to arrive at a decision on Monday because while Russia and the United Arab Emirates (UAE) insisted on the 500,000 bpd increase in production, Saudi Arabia, Kuwait and Algeria reportedly pushed to leave production unchanged.
Notwithstanding, a statement after the 13th OPEC and non-OPEC Ministerial Meeting (ONOMM) Tuesday, indicated that after about 48 hours of bickering, the organisation resolved to further pump the agreed additional quantity into the market.
OPEC reaffirmed the continued commitment of the participating countries in the Declaration of Cooperation (DoC) to a stable market in the mutual interest of producing nations; the efficient, economic and secure supply to consumers and a fair return on invested capital.
In addition, the meeting recalled the decision taken by all DoC participating countries at the 10th (extraordinary) ONOMM on April 12, 2020 to adjust downwards overall crude oil production, the unanimous decisions taken at the 11th ONOMM on 6 June 2020 and the outcomes of the 12th ONOMM on 3 December 2020.
It highlighted the unprecedented events of 2020 and shocking impact of the COVID-19 pandemic on the world economy and markets.
And commended the DoC participating countries for undertaking the largest and longest crude oil production adjustments in history in response to the exceptional challenges and market conditions caused by the pandemic.
It stated that rising infections, the return of stricter lockdown measures and growing uncertainties have resulted in a more fragile economic recovery that is expected to continue in 2021.
The meeting recognised that market sentiment had been buoyed recently by vaccine programmes and improved asset markets, but underscored the need for caution due to prevailing weak demand and poor refining margins, the high stock overhang and other underlying uncertainties.
“The meeting acknowledged the need to gradually return 2 mb/d to the market, with the pace being determined according to market conditions. It reconfirmed the decision made at the 12th ONOMM to increase production by 0.5 mb/d starting in January 2021, and adjusting production from 7.7 mb/d to 7.2 mb/d.
“The adjustments to the production level for February and March 2021 will be implemented as per the distribution detailed in the attached table
“The meeting reiterated the need to continue closely monitoring market fundamentals, including non-DoC supply and its impact on the global oil balance and overall market stability,” the organisation said.
It noted that high conformity levels have contributed to market rebalancing and stability, adding that between May and November, participating OPEC and non-OPEC countries contributed to reducing the global supply by approximately 1.9 billion barrels, including voluntary adjustments.
The meeting drew attention to the exceptional year of 2020 as an outlier that distorted the latest five-year average of OECD commercial oil stock levels and recommended retaining the 2015-2019 average as a more representative metric, while keeping the latest five-year average for the time being.