OPEC, allies keep oil output unchanged, prices jump

Members of oil cartel OPEC and allied countries have agreed to leave most of their existing oil production cuts in place as the spread of new coronavirus variants prolongs concerns about economic weakness.

The Organization of Petroleum Exporting Countries led by Saudi Arabia, joined with non-OPEC members, led by Russia, to reach the deal in an online meeting on Thursday. Most significantly, one million barrels per day in voluntary cuts from Saudi Arabia will remain in place at least through to April.

Many analysts had expected a small production increase, and the decision not to increase production quickly sent crude oil prices higher. The US contract, which had plunged last year as the pandemic restrictions on businesses devastated demand for energy, spiked 5.6 per cent higher on the day on Thursday to US$64.70 a barrel.

“I hate to disappoint those who tried to predict what we would do,” said Saudi energy minister Abdulaziz bin Salman.

Russia’s deputy prime minister, Alexander Novak, expressed “careful optimism” that the oil market was stabilising. Under the deal, non-OPEC countries Russia and Kazakstan can make small production increases.

The so-called OPEC Plus – which includes countries like Russia that are not part of the cartel but have been coordinating production in recent years - made deep cuts in output in 2020 to stave off a collapse in prices.

As more economic activity returned around the world, the group decided to add back 500,000 barrels per day in December. Saudi Arabia in January voluntarily cut one million barrels per day, supporting markets for crude oil.

Caution about more production on the part of Saudi Arabia faces a different outlook from Russia, which has been a reliable advocate for more supply. One factor contributing to differences is that Russia can balance its state budget at lower oil prices than can Saudi Arabia, according to the International Monetary Fund.

– AP