JAKARTA (TheInsiderStories) – One of the largest oil producers, Saudi Arabia give a surprised on the production cut by 1 million barrels a day (bpd) starting this month to offset a rise in output from Organization Petroleum Exporters Countries and allies (OPEC+), led by Russia and Kazakhstan. The agreement allows both countries to lift production by 75,000 bpd starting February from January levels and another 75,000 bpd in March.
The cuts are part of a deal to persuade most producers from the group consisting of the organization to hold output steady amid concerns that new lockdowns will hit demand. The news bring the oil prices jumped above US$50 a barrel for the first time since February of last year.
On Tuesday, oil prices climbed nearly 5 percent after Saudi agreed to make voluntary cuts to its oil output, while international political tension simmered over Iran’ seizure of a South Korean vessel. London’ Brent crude futures rose 4.9 percent to $53.60 a barrel and United States (US) West Texas Intermediate crude ended at $49.93 a barrel compared to previous day.
OPEC+ resumed talks on Tuesday after reaching a deadlock over February oil output levels on previous day. The statement highlighted the unprecedented events of 2020 and shocking impact of the COVID-19 pandemic on the world economy and markets and commended the participating countries for undertaking the largest and longest crude oil production adjustments in history in response to the exceptional challenges and market conditions caused by the pandemic.
It pointed out that rising infections, the return of stricter lockdown measures and growing uncertainties have resulted in a more fragile economic recovery that is expected to carry over into 2021. The meeting also recognized that market sentiment has been buoyed recently by vaccine programs and improved asset markets, but underscored the need for caution due to prevailing weak demand and poor refining margins, the high stock overhang and other underlying uncertainties.
OPECT+ acknowledged the need to gradually return 2 million bpd to the market, with the pace being determined according to market conditions. It reconfirmed the decision made at the latest meeting to increase production by 500,000 bpd starting this month and adjusting the production reduction from 7.7 million bpd to 7.2 million bpd.
“Production adjustments for April and subsequent months will be decided during the monthly meeting. The members reiterated the need to continue closely monitoring market fundamentals and its impact on the global oil balance and overall market stability,” wrote the statement.
The members noted that high conformity levels have contributed significantly to market rebalancing and stability. Between May and November, participating OPEC+ contributed to reducing the global supply by approximately 1.9 billion barrels, including voluntary adjustments, and this has been key to the rebalancing of the market.
They also expressed appreciation to participating countries, particularly the United Arab Emirates and Angola, which have performed beyond expectation. At the same time, it reiterated the critical importance of adhering to full conformity, and compensating the overproduced volumes in accordance with the statements of the previous meeting, in order to achieve the objective of market rebalancing and avoid undue delay in the process.
The Meeting decided to hold the next Joint Ministerial Monitoring Committee meeting on Feb. 3 followed on March. 3 and 4. While from US, the crude inventories fell by 1.7 million barrels in the week to Jan. 1 to about 491.3 million barrels, showed by American Petroleum Institute (API) data. It said, the lockdowns, which have weighed on fuel demand since early last year, loom.
The inventories fell by 1.663 million barrels, according to an estimate released Tuesday by the instititution, after a draw of 4.785 million barrels the previous week. Gasoline inventories rose by 5.473 million and distillate stocks by 7.136 million barrels.
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