The Organisation of the Petroleum Exporting Countries and its partners (OPEC+) face a delicate balancing act after one of the most chaotic year in history for oil.
Members of OPEC+ are due to meet via a videoconference on Monday to decide on production levels for February, hoping to leave the pandemonium behind them.
OPEC+ agreed to increase production by half a million barrels per day in January after their last meeting at the start of December.
Since April, OPEC+ has progressively reduced the production cuts and is expected to release an extra 500,000 barrels per day (bpd) into the market in January.
But, despite a pickup in prices towards the end of last year, there is still some uncertainty over the market levels for petroleum.
COVID-19 prompted OPEC to increase its meetings to deal with the gravity of the situation for crude producers, allowing OPEC+ to maintain a strong influence on the oil market.
The 13 members of the OPEC, led by Saudi Arabia, and their six allies led by Russia, agreed to meet at the beginning of each month to decide on any adjustments to production volumes for the following month.
They would meet two times a year at the OPEC’s headquarters in Vienna, prior to the pandemic.
Russia and Saudi Arabia are respectively the second and third-biggest oil producers in the world after the United States.
Oil production in Russia declined in 2020 for the first time since 2008, reaching its lowest level since 2011 following a global deal to cut output and sluggish demand caused by COVID-19.
Russian oil and gas condensate output declined to 10.27 million bpd last year, according to energy ministry figures.
The country’s deputy prime minister Alexander Novak, said Russia would support a gradual increase of the OPEC+’s output by another 500,000 bpd starting in February.
However, despite the OPEC+ might, nations outside OPEC cartel still have a major effect on the oil market, especially the US which produces 11 million barrels of crude per day.
The coronavirus pandemic saw oil consumption plummet in 2020.
Oil demand in China collapsed by 20% in February after the country and the world’s biggest importer locked down for the coronavirus pandemic.
In March a price war, between Saudi Arabia and Russia over how to respond demand drop sent shockwaves across the oil markets and added to black gold’s struggles.
As a result, in April for the first time in history US futures (BZ=F) traded below zero, as the world was so awash in crude. On 20 April 20, West Texas Intermediate (WTI) crude (CL=F) collapsed to minus $40.32 per barrel. This meant that producers paid buyers to take the oil off their hands.
But, fences between the two oil powerhouses were mended following an intervention from US president Donald Trump who brokered a peace deal, which resulted in the organisation’s largest output cuts.
In a move designed to bolster the oil market, Russia agreed in April to reduce its production by more than 2 million bpd, an unprecedented voluntary cut, along with other leading oil producers and the OPEC.
Meanwhile, civil unrest wiped out almost all of Libya’s oil production, it has spiked since October after a ceasefire deal was signed.
OPEC+ will be keeping a close eye on developments in the three members which have been granted exemptions from quotas — Libya, Iran and Venezuela.
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