OPEC and other oil-producing nations led by Russia, trying to gauge the strength of the global economy as the coronavirus continues to rage but with vaccines on the horizon, reached a compromise Thursday to modestly increase production in January.
But the talks revealed strains in the unwieldy group, known as OPEC Plus, which has tried to manage the oil market since 2016. These tensions could make it more difficult for the producers to stay in line with production targets as the global economy recovers in the coming months.
Under the agreement, members of the Organization of the Petroleum Exporting Countries along with Russia and other countries will increase production by 500,000 barrels a day in January and, potentially, by a similar amount in the following two months. The increase, less than 1% of the global oil market, comes while demand is still under pressure from the effect of the coronavirus pandemic.
The group will also hold monthly meetings to sign off on further adjustments.
The arrangement was a compromise between countries that wanted to proceed with a much larger increase of 2 million barrels a day, which had been agreed upon at an earlier meeting, and others, led by Saudi Arabia, that preferred to maintain current production cuts, estimated at 7.7 million barrels a day, given the uncertainties stemming from the pandemic.
Reaching a deal had been surprisingly difficult. The meeting Thursday had been delayed for two days while officials struggled to reach a consensus.
The recent news about the efficacy of vaccines to ward off the coronavirus, which has caused oil prices to climb to their highest levels since they crashed in April, probably made it harder to reach agreement. Responding to those higher prices, some oil producers saw less need to keep supplies tight and wanted to increase pumping to try to make up for almost a year of dismal oil earnings.
“As prices rise, the willingness to restrain supplies withers,” said Bhushan Bahree, an executive director at IHS Markit, a research firm.
What was striking was that the United Arab Emirates, long the closest ally of Saudi Arabia, OPEC’s de facto leader, proved difficult to corral. Analysts say the UAE’s ambitious leaders are irritated about several issues, including a tight quota that sharply crimps their plans to substantially increase oil production and the Saudi-Russia domination of oil decision-making in recent years.
Analysts, including Bahree, say the country, the third-largest producer in OPEC after Saudi Arabia and Iraq, may be considering going its own way in oil matters.
“They don’t want to be sidelined and just be a follower,” said Amrita Sen, head of oil analysis at Energy Aspects, a market research firm.
Out of frustration with the difficulty of forging a consensus, Prince Abdulaziz bin Salman, the Saudi oil minister and chairman of the OPEC Plus meetings, offered Monday to resign the chair of an influential committee that prepares the way for decisions by the group.
According to an OPEC news release Thursday, the oil producers urged him to continue leading the committee as well as OPEC Plus meetings, saying his efforts were “highly appreciated.”
