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On Thursday, Opec +, a coalition of 23 countries, including Saudi Arabia, Venezuela and Russia, held to gradually increase oil production in the coming months.
Previously, the Opec + countries had a production cut of seven million barrels a day, as well as a voluntary cut of one million barrels from Saudi Arabia. It came as a surprise when the Opec + countries chose to continue these cuts during their previous meeting in early March.
There was therefore great tension associated with Thursday’s meeting, and now the countries have decided to increase oil production gradually from May to July.
The market is responding to the news by sending the oil price up to around 65 dollars a barrel, which is an increase of over three percent so far today.
The countries will increase oil production by around 350,000 barrels in May and June, and then by 450,000 in July, according to Bloomberg. Saudi Arabia will also gradually end its voluntary production cut over the next three months.
In total, the Opec + countries will thus increase production by around two million barrels a day during the period, which is a quarter of what they now hold back with production cuts.
– The bottom line is that the oil market will get two million barrels per day over the next three months. We always knew that these barrels would return sooner or later, but the question now is whether they will arrive earlier than the market is ready for, Rystad Energy writes in a comment.
– The decision from OPEC + shows that patience was exhausted among many producers, who could not accept that some countries – mainly Russia – were allowed to constantly increase production while others kept it flat, Rystad writes further.
Saudi Arabia is phasing out cuts
The oil giant Saudi Arabia has chosen to be very conservative with its oil production through the corona pandemic. The country’s energy minister, Abdulaziz bin Salman, has repeatedly emphasized the importance of restraint.
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The country decided several months ago to introduce a voluntary cut of one million barrels, and several were surprised when the country chose to continue the cut the last time the Opec + countries met.
According to Bloomberg, Saudi Arabia will now probably phase out a good part, but not necessarily all, of its voluntary production cuts.
The phasing out of the voluntary cut comes in addition to the aforementioned increases of 350,000 barrels per day in May, June, and a further 450,000 barrels in July, according to Bloomberg.
Volatile oil price
The market has been closely following today’s meeting, which began around 14:00 Norwegian time. Since then, the oil price has hovered between 62 and 65 dollars, and around 20:15 Norwegian time, a barrel of Brent North Sea oil is traded for 65.1 dollars.
North Sea oil is high quality oil, and serves as a reference point for oil trade worldwide. The price of one barrel of Brent is up from 50 dollars at the turn of the year. We would not have had that increase if it were not for production cuts from Opec, according to raw material analyst Bjarne Schieldrop.
“If it had not been for these cuts implemented by Opec +, the oil price would not have been more than 30 dollars a barrel,” Schieldrop wrote in a report prior to the meeting.
– The increase in production will probably not be harmful, especially in June and July, as demand is also likely to increase. This is reflected in the market reaction, which is not a panic to reduce the price level, Rystad Energy writes in a comment. (Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We would like you to share our cases using a link, which leads directly to our pages. Copying or other form of use of all or part of the content, can only take place with written permission or as permitted by law. For further terms see here.
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