OPEC+ New Agreement - Dec 3
Posted: Thu Dec 03, 2020 3:02 pm
I was pleasantly surprised that WTI went up after this was announced.
Oil futures finished higher on Thursday, even as the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, announced that they’ve reached an agreement to pare current production cuts of 7.7 million barrels per day to 7.2 million barrels per day beginning in January. That essentially raises their collective production by 500,000 barrels a day. The group said it will hold monthly OPEC and non-OPEC ministerial meetings starting in January to "assess market conditions and decide on further production adjustments for the following month, with further monthly adjustments being no more than 0.5 mb/d." January West Texas Intermediate crude rose 36 cents, or 0.8%, to settle at $45.64 a barrel on the New York Mercantile Exchange.
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My take is this is why oil price went up: In addition to the agreement for adding 500,000 bpd of production back in, OPEC+ members that are laggards in sticking to their production quotas will have to make up the difference between now and March, one delegate said.
Additional things we know:
Russia’s share of the 500,000 bpd additional January production is 125,000 bpd.
Countries can either use their part of the 500,000 bpd increase by increasing production outright or—for the laggards—they can “use” their share of the additional allowance to offset any additional compensatory cuts they must make.
The fact that the agreement only covers January could mean that there were some heavy concessions that had to be made to reach a consensus. But the January-only deal is being sold as a flexible compromise that will allow the group to react to demand swings.
The January-only agreement should have a considerable effect on oil price volatility in the months to come. With fresh OPEC announcements every month, the market will hang on every word, and oil prices will respond in kind, regardless of their actual effect on oil prices.
In a press release following the meeting, OPEC chairman HRH Prince Abdulaziz bin Salman bin Abdulaziz al-Saud chastised the media for their “imaginative” star wars they have been perpetuating in recent weeks, referring to reports that the UAE and Saudi Arabia were spatting over the way forward.
By Julianne Geiger for Oilprice.com
Oil futures finished higher on Thursday, even as the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, announced that they’ve reached an agreement to pare current production cuts of 7.7 million barrels per day to 7.2 million barrels per day beginning in January. That essentially raises their collective production by 500,000 barrels a day. The group said it will hold monthly OPEC and non-OPEC ministerial meetings starting in January to "assess market conditions and decide on further production adjustments for the following month, with further monthly adjustments being no more than 0.5 mb/d." January West Texas Intermediate crude rose 36 cents, or 0.8%, to settle at $45.64 a barrel on the New York Mercantile Exchange.
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My take is this is why oil price went up: In addition to the agreement for adding 500,000 bpd of production back in, OPEC+ members that are laggards in sticking to their production quotas will have to make up the difference between now and March, one delegate said.
Additional things we know:
Russia’s share of the 500,000 bpd additional January production is 125,000 bpd.
Countries can either use their part of the 500,000 bpd increase by increasing production outright or—for the laggards—they can “use” their share of the additional allowance to offset any additional compensatory cuts they must make.
The fact that the agreement only covers January could mean that there were some heavy concessions that had to be made to reach a consensus. But the January-only deal is being sold as a flexible compromise that will allow the group to react to demand swings.
The January-only agreement should have a considerable effect on oil price volatility in the months to come. With fresh OPEC announcements every month, the market will hang on every word, and oil prices will respond in kind, regardless of their actual effect on oil prices.
In a press release following the meeting, OPEC chairman HRH Prince Abdulaziz bin Salman bin Abdulaziz al-Saud chastised the media for their “imaginative” star wars they have been perpetuating in recent weeks, referring to reports that the UAE and Saudi Arabia were spatting over the way forward.
By Julianne Geiger for Oilprice.com