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The prices of leading oil brands started to steadily increase after the OPEC+ countries reached an agreement on the terms of the deal for February and March this year.
Therefore, the price of the March futures of North Sea Brent Crude has overcome the $ 54 per barrel mark on the London ICE stock exchange. The last time Brent showed such an indicator was on February 26, 2020. At this time, it is trading at $ 53.95 per barrel, gaining 0.65%.
The WTI Crude oil also reached its next high on Tuesday. In particular, its price reached $ 50.26 per barrel during trading on the London ICE stock exchange. The last time such an indicator for WTI was recorded on February 25, 2020. At the time of writing, it is trading at $49.91 per barrel for February delivery.
So now, let's try to figure out why the long-awaited decision from OPEC+ caused such optimism in the oil market.
Yesterday, January 5, the alliance concluded its two-day meeting, which determined the terms of the deal for the next two months – the current terms of the agreement were extended for almost all countries. Kazakhstan and Russia were exempted, which had the opportunity to increase production, as well as Saudi Arabia and a number of other states that will have to reduce it.
It cannot be said that the participants in the meeting reached an agreement right away and without problems, because they planned to sign the agreement as early as Monday. This was prevented by disagreements between Russia and Saudi Arabia. Riyadh was in favor of maintaining the existing quotas, while the other one suggested increasing the alliance's production by 500 thousand barrels per day. In addition, the representative of Saudi Arabia recalled that such a decision meets the parameters of the OPEC+ deal adopted before 2020 ended. After that, the participating states agreed to gradually ease the restrictions on 2 million barrels per day with a favorable market situation.
Fortunately, the alliance managed to reach a compromise after two days of tense negotiations. According to the OPEC+ decision, Russia will increase oil production by 65 thousand barrels per day, while Kazakhstan will increase the indicator by 10 thousand in February and March.
As a result, the total OPEC + production limit will be eased to 7.125 million b/d in February and 7.05 million in March. However, the restrictions will actually be much greater, since Saudi Arabia announced a voluntary reduction in production by 1 million b/d in the next two months. Thus, its production during these months will be 8,119 million barrels per day.
In addition, the Minister of Energy of Saudi Arabia, Prince Abdulaziz bin Salman Al Saud, announced that a number of other countries will voluntarily reduce the overall oil production by 425 thousand barrels per day. At the same time, the countries lagging behind in the implementation of the agreement will have to make up for their debts under the compensation mechanism by the end of March 2021.
Abdulaziz bin Salman Al Saud said that in this way, Saudi Arabia will be able to avoid any possibility of another increase in excess oil reserves in storage facilities, which are currently being lowered.
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