Oil Nears $49 as OPEC+ Agrees Supply Cut for 2021

By Adedapo Adesanya

The price of the Brent crude moved closer to $49 per barrel on Thursday after it gained 1.02 per cent or 49 cents to sell at $48.74 per barrel.

This was buoyed by the agreement reached by members of the Organisation of the Petroleum Exporting Countries (OPEC) and their allies collectively known as the (OPEC+) on oil production for next year.

This development pushed the price of the United States’ futures, West Texas Intermediate (WTI) crude, higher by 0.86 per cent or 38 cents yesterday to $45.67 per barrel.

OPEC+ met on Thursday to work on policies for 2021 after talks earlier in the week reached no conclusion on how to tackle weak oil demand amid a new wave of coronavirus infections.

After much debate, the oil cartel reached a tentative agreement for January alone. This will see just the addition of 500,000 barrels per day in January to oil production quotas, which currently calls for a production cut of 7.7 million barrels per day. This means total production cut in January will now be 7.2 million barrels per day.

As part of the agreement, assigned quotas in the future could rise or fall and to determine those levels of oil production beyond January, OPEC+ ministers will hold additional meetings once every month.

This is seen as satisfactory to all parties because many were opposed to the extending production before the meeting which had to be delayed. Others worried about adding in any more output warning that that oil demand would not be able to sustain any added production.

In addition to the agreement for adding 500,000 barrels per day of production back in, OPEC+ members that are laggards will have to stick to their production quotas as they will have to make up the difference between now and March.

Analysts noted that 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.

However, they warned that the January-only agreement could have a considerable effect on oil price volatility in the months to come.