The OPEC+ group of oil producing countries and their allies have struck a deal to increase production from January, but by less than anticipated in their previous accord, the Kazakh energy ministry said Thursday.
“It has been decided to increase the amount of oil offered to the market from January 2021, with a total increase from OPEC+ countries of 500,000 barrels per day,” the ministry said in a statement at the end of video-conference of countries in the OPEC+ club.
OPEC and Russia have moved closer to a compromise over oil supply policy for 2021 after talks earlier this week failed to yield a decision on how to tackle weak oil demand amid a second coronavirus wave, OPEC+ sources told Reuters.
The Organization of the Petroleum Exporting Countries, Russia, and allies, a group known as OPEC+, had previously been expected to extend existing oil cuts of 7.7 million barrels per day (bpd), or 8 percent of global supplies, until at least March.
But after hopes for a speedy approval of anti-virus vaccines spurred an oil price rally at the end of November, several producers started questioning the need to keep such a tight rein on oil policy, as advocated by OPEC leader Saudi Arabia.
OPEC+ sources have said Russia, Iraq, Nigeria, and the United Arab Emirates have all to a certain extent expressed interest in supplying the market with more oil in 2021.
“Things are heading towards a compromise,” one OPEC delegate said before the OPEC+ meeting, which started at around 1450 GMT, almost two hours behind schedule.
Energy Aspects, a consultancy, wrote: “We understand that there has been tentative progress in discussions between OPEC+ members today and that ministers are inching closer to a compromise that should break the impasse.”
Sources have said options now range from a rollover of existing policies to easing cuts each month by between 0.5 million to 1.0 million bpd starting from January.
Two sources told Reuters the preferred option was a rollover of existing cuts into January, and a monthly increase by 0.5 million bpd in February, March, April, and May.
The view was also confirmed by Iranian oil minister Bijan Zanganeh, who spoke to local Iranian media.
OPEC+ has to strike a delicate balance between pushing up oil prices enough to help their budgets but not by so much that rival U.S. output surges. U.S. shale production tends to climb above $50 a barrel. Prices are now around $48.
Adding to the challenge within OPEC+, Moscow’s finances can tolerate lower oil prices than Riyadh’s.
JP Morgan estimated that additional production of 2 million bpd would cost OPEC+ $55 billion in lost revenues in 2021, as the price drop would outweigh the benefit for higher output.