The latest meeting of the OPEC+ group ended with a surprise twist – Saudi Arabia will cut its oil production to allow Russia to make modest production increases.
Two factions had emerged at the latest meeting, having coalesced around the two largest producers in the group. Russia favours moving towards increased production based on an optimistic outlook of vaccine rollouts leading ultimately to greater oil demand, while Saudi Arabia is more cautious given the uncertainties that still surround the COVID-19 pandemic.
To preserve unity in the group, Saudi Arabia has agreed to voluntarily reduce production by a further million barrels per day (bpd) beyond its current quota in February and March to enable some other producers to pump more.
The official quotas for all OPEC members will remain unchanged next month. All production increases relate to non-OPEC participants, specifically Russia and Kazakhstan, which are concerned about losing market share to US shale producers like BP, which owns the Castrol lubricant brand.
The official OPEC+ production cuts will drop from 7.2 million bpd to 7.05 million bpd in March, but once Saudi Arabia’s voluntary cut is added onto this, the overall production cut in the group will be higher in March, at 8.05 million bpd, than it was last month, at 7.7 million bpd.
Unsurprisingly, oil prices rallied on the news, with both WTI and Brent crude prices increasing by about 5%, but some will argue that OPEC’s willingness to shoulder more of the heavy lifting signals that its influence is starting to wane.