OPEC Meeting Sets Curbs at 500,000 Barrels as Oil Prices Rose
Last updated on July 31st, 2020
Two days of OPEC meeting in Vienna, led the Opec alliance (including Russia) agree for a curb of 500,000 barrels per day on Dec 6. After aggressively shaking the oil market, Saudi Arabia has pledged additional voluntary cuts of a further 400,000 b/d.
Despite warnings of a severe supply surplus in the initial six months of 2020, Saudi Arabia has been struggling to deal with the changes in oil industry. Specifically, the country is keen to support the valuation of Saudi Aramco at $2tn in the coming months.
Discussions of reaching a deal went through the night in the OPEC meeting and the final decision came out on December 6. The agreement has shifted Brent crude 1.4 percent high to $64.25 a barrel and taken gains for the international oil benchmark to more than 5 percent over the week.
The deal finalised at the OPEC meeting takes total production cuts, that have evolved since Russia first started working with OPEC in order to combat the price impact of rising US shale supplies, to 2.1m b/d, or more than 2 percent of global demand. Even though Saudi Arabia had already made some additional cuts, the OPEC alliance target was previously set at 1.2m/d.
As per Helima Croft from RBC Capital Markets, “Prince Abdulaziz was deeply concerned about the impression that this would be just a cosmetic cut and wanted to show it was real, credible and would impact the physical market.”
With respect to the interest of Saudi Arabia in the IPO of Saudi Aramco, Crown Prince’s half-brother, Prince Abdulaziz said that share would rise to a level valuing the firm above the $2tn set by rulers. He said, “They can bet this will happen”.
In order to remain in the deal, Moscow has extracted concessions and included some exemptions for barrels it produces as a by-product of gas production. Prior to the OPEC meeting, Prince Abdulaziz said that the oil market participants need to trust and support them while assessing their production numbers.
Before the meeting, sources claimed that the Saudi kingdom would take on most of the burden in case other nations comply with their agreed quotas. Reports state that the next meeting would take place in March 2020.
Commenting on the move of Saudis, the Director of futures at Mizuho, New York, Bob Yawger said, “The Saudis did a good job of setting expectations that they could have additional cuts.”
The oil futures of West Texas Intermediate rose by 1.3 percent to US$59.20 a barrel. The seven percent hike on the week is their biggest rise since June.
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