Oil prices heave been rising for fifth week in a row until OPEC+ sealed a deal last week that compromised on the production cuts in place. OPEC+ members have agreed on a staggered deal that would raise output by 500,000 barrels per day from next month, to boost oil supply. This means that the production cut will go from 7.7 million barrels per day to 7.2 million barrels per day. While the decision comes as a surprise because the coronavirus continues to weigh on global demand, the oil market witnessed stability after uncertainty that lingered with Brent nearing $50 a barrel – its highest since March.
The 500,000 bpd in January is still below that 2 million bpd agreed initially between the producers. However, the level could go up or down beyond January 2021 as the output level decision will be a monthly official meeting.
A bit of context here is necessary. Oil price volatility has been crushing the global economy; after the historic crash of 2020 when Covid-19 swamped economies around the world, the producer group finally were able to agree upon a curtailing plan where it first cut production by 9.7 million bpd to shore up prices. Since then, the production cuts have come down to 7.7 million bpd with another 2 million bpd expected to be added back in Jan-21.
Crude oil prices have been up amid vaccine news. And now the phased plan instead of increasing production in one go (as the original plan) or delaying the plan altogether for three months (as was pushed by KSA and UAE) might keep oil prices stable and buoyed for now. But does it mean that the bulls have taken over or the volatility as vanished? Not really? The new challenge for OPEC+ will now be to maintain control and support prices with more barrels added every month to the market.