Saudi Arabia and Russia have found a temporary consensus to marginally increase oil production.
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After two days of intense discussions by videoconference and numerous bilateral exchanges, the oil-exporting countries of OPEC and their allies within the OPEC + alliance reached an agreement on Tuesday 5 January which maintains a fragile and temporary status quo, with a very slight increase in production. A formula that seemed to find an echo in the markets, by raising the price of a barrel of Brent to 53 dollars (42 euros) on Tuesday evening, its highest level since March 2020.
After a difficult meeting in December, the members of the cartel and Russia – which is not part of OPEC but occupies a preponderant weight in the discussions – had met at the beginning of January to find out whether they would open up the valves. Since May 2020, these countries have imposed massive production restrictions on themselves to prevent a further collapse in oil prices. They agreed to gradually reduce these quotas, but travel restrictions and the economic slowdown linked to the health crisis prompted them to be cautious.
“The meeting stressed that the rise in infections [ to Covid-19], the return to strict containment measures and growing uncertainties are leading to a more fragile economic recovery “, explains the cartel in its final press release. This formula reflects the concerns of some of the countries, for whom the health situation risks continuing to weigh on demand, in particular on air and road traffic.
Convoluted compromise
Saudi Arabia, the de facto leader of the cartel, is particularly attentive to this subject and fears that a too strong relaxation of quotas could cause prices to collapse. But Russia had come to the meeting with other intentions and hoped to convince its partners to raise the total production of the OPEC + alliance to 500,000 barrels per day.
A convoluted compromise ultimately did. been found. Saudi Arabia created a surprise by agreeing to voluntarily reduce its production to let Russia and Kazakhstan increase theirs by 75,000 barrels per day. Finally, the production reduction of the OPEC + alliance will drop from 7.2 million barrels per day in January to 7.125 million in February, then 7.05 million in March.
This marginal reduction makes it possible to keep up appearances: Saudi Arabia wants to avoid a fall in prices at all costs – a barrel under $ 50 is a disaster for its budget. But Russia and Kazakhstan – the biggest producers in the alliance outside of OPEC – are getting an unusual pass. Moscow has a clear objective in mind: to prevent a rise in prices from restarting American shale oil, which has been hard hit by the crisis and which is not competitive as it is.
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