Oil prices rallied on Tuesday morning, following reports that Russia—the OPEC+ producer that was insisting on a 500,000-bpd production increase in February—has agreed that there would not be another rise in the pact's production next month.
Both benchmarks were up by more than 3 percent as of 10 a.m. ET, with WTI Crude surging above $49.50 a barrel and Brent Crude trading at $52.80 after several reports emerged that Russia had accepted a compromise not to push for another increase next month.
"An informed source just told me that it appears that #Russia has agreed that there won't be any increase of 500 thousand bpd for the month of February, but, not the cessation of increase for the month of March," oil journalist Reza Zandi tweeted early on Tuesday, ahead of the second day of the online meeting of the Joint Ministerial Monitoring Committee (JMMC).
On the first day of the virtual conference on Monday, the ministers failed to reach a deal and adjourned talks until Tuesday. Reports had it on Monday that Russia and OPEC heavyweight the United Arab Emirates (UAE) were in favor of another 500,000 bpd increase in OPEC+ production in February, while most of the other OPEC+ producers were favoring a delay to that increase, due to the surging COVID-19 cases and the new lockdowns imposed to fight them.
Amena Bakr, Deputy Bureau Chief & Chief OPEC Correspondent at Energy Intelligence, tweeted on Tuesday, "According to 2 informed sources: Russia will accept a one month rollover provided there will be an increase in March."
The start of the meeting on Tuesday was delayed by half an hour and was expected to start at 4 p.m. Vienna time—a sign that delegates and ministers of the OPEC+ group still have negotiating and convincing to do to reach a unanimous decision.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, commented that the report of OPEC+ agreeing to roll over the current level of production into February "Makes perfect sense given the renewed demand uncertainty related to the fast-spreading UK virus variant."
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Most OPEC+ Producers Don’t Favor Another Output Increase
- China’s Oil Giants Face NYSE Delisting
- The Russian Energy Giant Mining Bitcoin With Virtually Free Energy
This means that OPEC+ will continue to implement production cuts of 7.2 million barrels a day (mbd) until the end of February. This makes perfect sense given the stricter lockdown that is being introduced globally to combat the COVID-19 pandemic.
Russia’s agreement with OPEC+ not to increase production by 500,000 barrels a day (b/d) in February is reported to be conditional on OPEC+ also agreeing to increase production by similar amount in March.
Still, market conditions could change markedly either way between now and March thus allowing either for OPEC+ production increase to go ahead in March or to be withheld once again.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London