OPEC members agree to extend oil output cuts by three months
Oil production by OPEC+ group to be capped at 7.7 million barrels per day until March
OPEC members have reached a consensus on extending the existing oil cuts by the OPEC group that amount to 7.7 million barrel per day oil by three months from anuary, Algeria’s energy minister said on Monday.
Abdelmadjid Attar, whose countryholdsOPEC’s rotating presidency, said OPEC would work to convince other members in the OPEC alliance at their meeting on Tuesday to back that policy for an extension, Algeria’s state news agency APS reported.
“2020 continues to be a year of immense challenges caused by the COVID-19 pandemic,” Abdelmadjid Attar, who currently holds the rotating presidency of the Organisation of the Petroleum Exporting Countries (OPEC) and is also Algeria’s energy minister, said in a speech broadcast live at the beginning of the group’s videoconference meeting.
The common goal of the 13 member states, who will be joined by Russia and other allies forming the OPEC grouping on Tuesday, is to keep afloat a crude market devastated by the COVID-19 pandemic and which is slowly recovering from the depths into which prices plunged at the end of April.
That month, OPEC members agreed to cut production by 7.7 million barrels per day (bpd), which was meant to be eased to 5.8 million bpd in anuary 2021.
However, most observers expect the cut instead to be extended by three to six months to take into account the ongoing effects of the virus.
A “second wave of the pandemic and related lockdowns put a damper on demand,” Attar told the ministerial meeting.
“The shock to the oil industry is massive and its severe impacts will likely reverberate in the years to come,” Attar said.
Despite encouraging news from trials for vaccines by pharmaceutical companies, global deployment would take time and its effects might not become significantly apparent before the second half of 2021, Attar cautioned.
ust this March, the last of their meetings to be held at OPEC headquarters in Vienna before the pandemic forced them online turned into a fiasco when Saudi Arabia and key ally Russia failed to reach an agreement and spent the next month engaged in a fratricidal price war.
Whether all members are currently sticking to the
output quotas that have already been assigned to them has also become a sensitive topic.
Those exceeding their allotted output -- foremost among them Iraq and Nigeria -- regularly come in for a scolding from Prince Abdelaziz bin Salman, energy minister of Saudi Arabia.
Crude oil prices have picked up by 25 percent since the beginning of the month and have returned to roughly their pre-pandemic levels of between 45 and 50 dollars per barrel for both the US benchmark, West Texas Interme
diate (WTI), and Europe’s Brent North Sea contracts.
However, they were down on Monday morning in what analysts say was a sign of investor jitters ahead of the meeting.
in April, OPEC achieved an unprecedented diplomatic agreement, agreeing to cut output to the tune of 9.7 million barrels a day (almost 10 percent of global production), while obtaining the support of other G-20 countries.
And so far, compliance with the agreement that imposes major output cuts on oil-dependent, fragile econo
mies has been high, close to 100 percent. This is due not only to fears of a new price war, but also to the introduction of a mechanism that forces noncompliant signatories to compensate for past overproduction by producing below their quota for a certain number of weeks.
This is the most effective method OPEC has yet found to dissuade cheating. Meanwhile, the credible commitments and a well-communicated strategy to roll back the output curbs have set market expectations and have kept prices relatively stable.