The world’s largest oil exporters will increase crude production, but less than they had anticipated , as Covid continues to slow the recovery of the world economy.
That is the reading of the agreement reached this Thursday by the so-called OPEC +, that is, the group made up of the 13 governments of the Organization of Petroleum Exporting Countries (OPEC), plus another 10, led by Russia, with whom they are coordinating their oil policy.
So on January 1, instead of expanding the production quota by 1.9 million barrels, as was initially planned, the 23 cartel countries will only do so by half a million.
It is a compromise solution between the two heavyweights of the group, Saudi Arabia and Russia, although the first of those countries can be considered the winner, since the increase is much lower than what Moscow wanted, and, in addition, it includes a clause in Small print.
The obligation for countries that have pumped more oil than they were allocated to reduce their production between now and March by an amount equal to what they had produced in excess. In practice, this means that a large part of what is earned in production in the official quota, must be cut by those states that have violated their commitments.
The deal has had an immediate impact on the price of crude. A barrel of Brent quality oil from the North Sea, a benchmark for Europe, was trading this Friday at $ 49.77, thus reaching highs since the beginning of last March.
In this way, the price of a barrel of Brent stood at the opening of European markets at 49.63 dollars, 1.89% above the closing of Thursday . For its part, the price of West Texas Intermediate (WTI) crude, the reference for the United States, rose 1.64% to $ 46.39, also at the highest since the beginning of last March.
Riyadh has been defending lower quotas for a year, to keep the price higher. Moscow, on the contrary, prefers cheaper oil in order to prevent the third party in the contest, the United States, which is not subject to any cartel to fix its production, from continuing to eat market share from the big producers.
The key to US competitiveness is so-called shale oil, which is extracted through techniques known as hydraulic fracturing or fracking and horizontal drilling. Thanks to this system, which began to spread a decade and a half ago, the US has become the world’s leading producer of crude oil. 90% of the wells drilled in the United States are fracking.
The plan that OPEC + is now working with is to increase production by half a million barrels every three months, depending on the progress of the world economy. It is a modest increase, which should be pulling prices up as the reactivation of the world economy consolidates.
In fact, in Asia demand is already on the rise, although in Europe and the United States it is still at very low levels. The same goes for the different products. While gasoline consumption for cars is on the rise, jet fuel remains at minimal demand levels.
This contradictory market situation has increased tension within the cartel of large exporters. In principle, the decision reached yesterday should have been taken on Tuesday, but the disagreements between Russia – which wanted to dramatically increase production – and Saudi Arabia – which defended leaving it the same for three more months – forced the summit to be postponed for two days.