Oil ministers from the world’s largest petroleum producers agreed to raise global production by 500,000 barrels a day beginning in January — a move that was viewed by oil analysts as a compromise after a rare rift between Saudi Arabia and the United Arab Emirates, another major producer that historically has aligned with its larger neighbor.
OPEC and its allies had resumed talks on Thursday, after suspending negotiations earlier in the week after an uncharacteristic breakdown of talks among officials on how to address the pandemic-induced slowdown in demand.
“In general, these end-of-year meetings have proven to be the more volatile of the semiannual OPEC conferences,” said Peter McNally, global energy sector lead at investment and research firm Third Bridge. “Reaching consensus is more complicated at the end of the year than mid-year when demand is typically increasing and output is raised to meet that increased seasonal market need.”
Oil markets have been roiled by the demand shock of the pandemic, which triggered such great volatility in the global oil market that, for a brief period in April, the price of oil futures — that is, the value at which a buyer would agree to purchase at a particular future date — fell below zero. Although primarily a technical headache for speculators, the inversion highlighted just how severe the oil glut had become.
In May, OPEC implemented a record-breaking production cut of 9.7 million barrels a day, which it changed to 7.7 million in August. Initially, the group laid out a plan to exit from that drastic 9.7 million barrel cut by increasing production by 1.9 billion barrels a day beginning in January 2021. More recently, though, industry participants had widely expected OPEC to extend its current level of production cuts through March — the preferred course of action for Saudi Arabia.
As the de facto leader of OPEC, Saudi Arabia has typically held considerable sway over the group’s actions, but Thursday’s announcement indicated to industry observers that the kingdom does not hold the influence it once did.
“It’s certainly an interesting chapter to see some cracks forming among OPEC’s core that could create some complexity in agreements to production cuts,” said Patrick DeHaan, head of petroleum analysis at GasBuddy.
Now numbering nearly two dozen, the members of OPEC and the other oil-producing nations that comprise OPEC+ have increasingly diverse agendas and concerns. “Friction is one thing — that’s routine in times of crisis. But ordinarily, they figure out a compromise and present a united front,” said Stewart Glickman, energy equity analyst at CFRA Research. “I think sticking to the original plan would have caused crude oil prices to plummet.”