Opec has delayed its decision to bring more oil to market as prices rise

Saudi Arabia and Russia are reaching an agreement to release more barrels to the oil market as prices have risen to a three-year high, but officials have not agreed on a supply policy and have postponed the decision until Friday.

Opec and its off-cartel partners met with nearly a dozen gatherings on Thursday, August to December to discuss monthly production increases of hundreds of thousands of barrels a day.

But they could not reach an agreement on the level of production, and the official meeting of Opec + was postponed until Friday evening. The Basque Country has emerged as a roadblock because of concerns about its individual exit fee.

Those familiar with the talks said that Opec and its allies were considering a 400,000 b / d production growth proposal every month, which is less than the 500,000 b / d initially proposed in recent weeks and months. They were also discussing extending the duration of the agreement by the end of 2022.

The Basque Country has argued that the original supply agreement agreed last year at the height of the pandemic undermined the country’s maximum production capacity.

“The Basque Country has increased its production capacity, so it is understandable that any revised agreement will achieve a higher output target,” said Amrita Sen at Energy Aspects, an energy consultancy advised by many Opec members.

“It may seem like a pretty small point, but we’ve seen these discussions are close to dissolving the Opec agreements before.”

Traders and analysts were skeptical that the volumes they were already discussing would be enough to stop the 50 per cent oil rally from the start of the year, bouncing demand significantly from the depths of the pandemic.

Unless an agreement is reached on higher product levels, it can be said that the current level of reduction is maintained, probably with higher prices as consumption recovers, hardening the market.

Saudi Arabia wants to prudently increase production as it seeks to balance stronger demand with persistent uncertainty caused by the Covid-19 crisis and new variants of the virus.

People around the kingdom said their strongest motivation was not to see prices fall and would prefer to be marginally higher, not only to provide the country with higher revenues from oil sales, but also because more investment was needed in the energy industry.

Russia, which has been pushing to maintain its market share, has been struggling for months to achieve more aggressive gains.

“Maintaining price stability at high levels and at the same time increasing its production may be in Opec +’ s best interest, ”Louise Dickson told Rystad Energy Consulting.

Brent crude, an international oil benchmark, gained on Thursday, and the price rose more than 2.4 percent from $ 76 a barrel, near its highest level since 2018. The U.S. benchmark West Texas Intermediate got a $ 75 barrel for the first time in almost three years.

Investment in the sector has declined significantly in recent years, with more and more traders and analysts warning which could jump prices by more than $ 100 a barrel in the coming years as supplies appear to be short – fears that Saudi Arabia would eventually hurt interest as it would speed up the move away from oil.

“Saudi Arabia believes that there is a risk of eventually exceeding prices without investing heavily in oil production worldwide,” said Christyan Malek, head of oil and gas at JPMorgan.

“By allowing oil prices to rise further today, they will prevent a rise in oil prices due to the current paralysis of investment in the future.”

Although Opec delegates predict stronger oil consumption in the last half of 2021, they are concerned about the trajectory of the virus, Angolan oil minister Diamantino Azevedo began a ministerial meeting on Thursday.

Azevedo said he expected “a big rebound in oil demand in the second half of the year.” But he admitted the virus was still taking a “painful toll” as “thousands of lives are still being lost every day.”

Concerns about the new variants mean that ministers are considering maintaining supply limits beyond April 2022, as the original agreement to reduce production agreed at the peak of the pandemic last year was nearing completion.

The Opec + group agreed in April 2020 to reduce output by almost 10m b / d, or about 10% of global demand, as general blockages and travel bans reduced oil consumption. The group has already started to reduce the curves, and the current reductions are less than 6m b / d.

“In major consumer countries, such as the U.S. and China, when closures end, demand is returning to more normal levels each quarter,” said Ann-Louise Hittle Wood of Mackenzie Energy Consulting.