OPEC+ finally reaches deal on 2021 oil output cuts

After much debate, the OPEC+ group has finally reached an agreement on oil production for next year. Or at least for January.

OPEC+ will, as a group, add in 500,000 barrels per day (bpd) in January to its oil production quotas, which currently calls for a production cut of 7.7 million bpd. The total production cut in January will be just 7.2 million bpd.

Future assigned quotas could rise or fall, and to determine those levels of oil production beyond January, OPEC+ ministers will hold additional meetings—one each month.

The agreement is being touted as a win for all parties, although behind closed doors, it is unlikely that all ministers feel that way, as some ministers were vocally opposed prior to the meeting to adding in any production out of fear that oil demand would not be able to sustain any added production.

In addition to the agreement for adding 500,000 bpd of production back in, OPEC+ members that are laggards in sticking to their production quotas will have to make up the difference between now and March, one delegate said.

Additional things we know:

• Russia’s share of the 500,000 bpd additional January production is 125,000 bpd.
• Countries can either use their part of the 500,000 bpd increase by increasing production outright or—for the laggards—they can “use” their share of the additional allowance to offset any additional compensatory cuts they must make.

The fact that the agreement only covers January could mean that there were some heavy concessions that had to be made to reach a consensus. But the January-only deal is being sold as flexible that will allow the group to react to demand swings.

The January-only agreement should have a considerable effect on oil price volatility in the months to come. With fresh OPEC announcements every month, the market will hang on every word, and oil prices will respond in kind, regardless of their actual effect on oil prices.

In a presser following the meeting, OPEC chairman HRH Prince Abdulaziz bin Salman bin Abdulaziz al-Saud chastised the media for their “imaginative” star wars they have been perpetuating in recent weeks, referring to reports that the UAE and Saudi Arabia were spatting over the way forward.

This article was originally published on Oilprice.com