The recent OPEC+ meeting concluded with a compromise that will see it participants begin to slowly ramp up production again from January next year.
Under the existing deal, the intention was to begin tapering off the 7.7 million barrels per day (bpd) of total cuts by adding an extra 2 million bpd of production next year. When this was agreed, OPEC had been expecting demand to return over 2020, but a second wave of COVID-19 infections has resulted in stricter restrictions again coming into force in many countries.
Despite optimism brought about by the news of effective COVID-19 vaccines, considerable short-term uncertainties remain in the oil markets, and there is also the possibility of US producers like ExxonMobil, the oil major that supplies Mobil distributors, ramping up production again. Led by Saudi Arabia, some countries wanted to extend the current cuts in 2021, while others wanted to proceed with the planned tapering.
After a fraught meeting, which needed a two-day delay in order to reach a conclusion, participating countries agreed to boost production by 500,000 bpd in January. This is a fraction of the planned increase, although there is the possibility of further increasing it by a similar amount in subsequent months.
Some cracks are also starting to appear in OPEC’s unity. Its third-largest producer, the United Arab Emirates, proved hard for Saudi Arabia to bring to its cause, which is surprising because the two Gulf States traditionally align within OPEC. Some suggest it may even leave the cartel.