Oil Production Agreement

LONDON (Bloomberg) –OPEC – has agreed to gradually ease its oil production cuts next year, giving a fragile market more time to absorb the extra supply. It was clear that the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC, would have a hard time making a decision on oil production in the new year, when the group postponed its meeting this week. The two oil giants worked together to orchestrate the extension agreed on Saturday, and also urged Iraq, OPEC`s second-largest producer, to publicly declare that it would meet its commitment to cut production by about 1 million barrels per day. Analysts estimate that Iraq has missed this target of hundreds of thousands of barrels per day. The latest news about the effectiveness of coronavirus vaccines, which have pushed oil prices to their highest level since their fall in April, may have made it more difficult to reach an agreement. In response to these higher prices, some oil producers saw less need to maintain supply and wanted to increase pumps to try to improve nearly a year with gloomy oil yields. Oil prices have responded in terms of in-kind contributions and have been rising steadily since the fall in mid-April, forcing oil futures below zero and reaching the levels seen decades ago. However, in the run-up to the June meeting, market participants were concerned that a premature increase in production would jeopardize the substantial progress already made. As the trigger for the increase in production was on July 1, Saudi Arabia and Russia agreed last week to extend production cuts by one month and postpone all production increases until August. Members of OPEC, an alliance of the 13 OPEC countries and 10 Russian-led cohorts, announced on Thursday that they had reached a compromise in their discussions on changes to oil production in the coming months.

Saudi Arabia and Russia have reportedly voted in favour of extending the current reduction of 7.7 million barrels per day (bpd) until the first months of 2021. Several other countries opposed an extension and attempted to reduce the cuts agreed in April to 5.8 million bpd. In the end, the 23 countries agreed to rejuvenate the 500,000 bpd reductions in January and then decide each month on the course to come.