OPEC+ is discussing the possibility of starting to raise its collective oil production from January, the Wall Street Journal reported, citing unnamed sources familiar with the discussions.
The extended oil cartel is meeting today to continue debates on the future of its oil production cut deal after it failed to reach an agreement on Tuesday. According to Reuters, most observers were unanimous that OPEC+ will continue with the current rate of cuts—7.7 million bpd—which were originally supposed to be in effect until the end of this year, to be followed by a relaxation of 2 million bpd beginning in January.
Russian business daily Vedomosti reported yesterday that Moscow would rather boost production from January by a modest 500,000 bpd, and The Wall Street Journal’s sources also mentioned this figure. In that, Vedomosti said, Russia’s position was shared by the UAE.
According to the WSJ sources, an increase in production of half a million barrels daily would be the compromise necessary to move the deal forward after internal divisions in OPEC+ cast a shadow over its future.
Any increase in production, however, would weigh on prices that just started to recover on promising vaccines and, not least, the possibility of OPEC+ extending the current rate of cuts.
Rystad Energy reported earlier this week that if OPEC+ failed to agree to an extension of the current cuts and instead stuck to the original deal, this would result in a glut of as much as 3.1 million bpd for the month of January and a smaller overhang for the following four months.
Meanwhile, OPEC production is rising on the back of Libya’s efforts to reverse the collapse in its oil industry caused by the blockade on oil terminals. In November, the cartel’s total rose by 750,000 bpd from October—the fifth month in a row of production increases, despite the cut deal.
By Irina Slav for Oilprice.com
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However and for the sake of maintaining harmony among its members and allies, OPEC+ may agree a compromise to extend production cuts of 6.7 mbd-7.2 mbd instead of 7.7 mbd thus effectively increasing production between 0.5 mbd-1.0 mbd.
My advice is for OPEC+ to extend the full cuts of 7.7 mbd particularly in view of Libya’s raising its oil production to almost 1 mbd and Norway ending its cuts of 134,000 barrels a day by the end of 2020.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London