OPEC deal pushes U.S. oil to key price
Oil prices on Tuesday soared to near $50 a barrel — a key threshold in the U.S. — after OPEC and its allies reached a production deal that will reduce the amount of oil the group releases to the market.
The agreement pushed West Texas Intermediate, the U.S. benchmark, to settle at $49.93 on Tuesday, up $2.31 or 4.9 percent a day after falling by1percent when talks stalled. U.S. producers say $50 oil, a price not seen since February, allows them to break even.
In Tuesday’s unusual deal, Saudi Arabia agreed to unilaterally cut 1 million barrels a day in February and March, while most of the rest of the group keeps output steady. Russia and Kazakh
stan were allowed to raise production by a combined 75,000 barrels a day in each of those months, an increase that Iranian Oil Minister Bijan Namdar Zanganeh said would barely register on the market.
“If the proposal gets confirmed … prices are definitely in for better days in the first quarter of 2021,” said Bjornar Tonhaugen, head of oil markets for Norwegian research firm Rystad.
The compromise breaks a deadlock among the Organization of the Petroleum Exporting Countries and its allies over whether to increase crude production as nations are still battling a coronavirus pandemic that has slashed demand for oil.
OPEC and its allies are idling 7.2 million barrels a day, or about 7 percent of world supplies, and had planned to return 1.5 million barrels a day in installments over the coming months.
Russia, however, eager to regain market share, had pushed to increase production by another
500,000 barrels per day in February.
Oil’s recent rally will likely boost output by U.S. shale producers. U.S. production had fallen by
2.84 million barrels a day from November 2019 to May 2020, before rebounding by1.2 million barrels per day in December.
Karr Ingham, a petroleum
economist with the Texas Alliance of Energy Producers, said he expects OPEC’S decisions on output will have little effect on U.S. production, which is expected to rise
by 200,000 barrels per day by the end of 2021.
“Bringing back half a million barrels per day is peanuts compared to the 7.7 million barrels (OPEC) cut last year,” Ingham said.
“We’re not talking about undoing 7 million barrels of production cuts. The risk is minimal to Texas and U.S. producers.”
Ingham said renewed economic and travel restrictions in response to a new strain of the coronavirus pose a greater risk to the U.S. oil and gas industry than OPEC gradually raising production levels.
British Prime Minister Boris Johnson on Monday imposed a national lockdown to slow the spread of the new COVID-19 variant.
“Where the rubber meets the road is this new strain of COVID and what it does to energy demand and prices,” Ingham said. “If the market begins to sense that these things are a problem, that’s what the operators will respond to.”