Past confabs among oil-producing nations have caused frictions between price bulls and bears. Part of the reason the Opec+ cartel launched a new monthly format this year was to encourage harmony. Alas, uncertainties about the timing and effectiveness of a new Covid-19 vaccine triggered yet another dispute.
Opec should be happy to hold oil prices at around $50 per barrel. This price earns oil-producing countries a decent revenue without encouraging excessive growth from rival US shale companies.
This week, Russia and Saudi Arabia could not agree on whether to increase the cartel’s production. The market abacus had already tallied an expected half million barrels per day of added supply. But in the event Opec, led by Saudi Arabia, surprisingly decided late Tuesday to slash production by a million barrels, with Russia and Kazakhstan allowed to produce more. This is a significant cut. As of November, Opec countries were lifting 25.2m barrels daily, according to Bloomberg data, a fifth below the five-year average. The Saudi caution stems from fears that the surge in virus cases in Europe and the US in past weeks could delay a rebound in oil demand.