Oil prices might firmed on Thursday on reports that OPEC and Russia have agreed to a modest output increase from January of 500,000 barrels a day – but so far there’s no long term agreement on production cap policy for the rest of next year, so the market is setting itself up for another bout of instability.
Unless there’s an outbreak of unanimity on this issue then the modest deal on Thursday has in effect ‘kicked the can down the road’ into 2021 with all the attendant uncertainty and price volatility that indecision brings.
The increase means the OPEC and Russia, a group known as OPEC+, will be cutting production by 7.2 million BPD, or 7% of global demand from January, compared with current cuts of 7.7 million bpd.
Brent crude futures were trading 1%, higher at $US48.77 a barrel just before 7 am Sydney time, while in New York, West Texas Intermediate (WTI) crude rose 0.8%, to settle at $45.64 and was at $US45.69.
OPEC+ met on Thursday to work on policies for 2021 after talks earlier in the week failed to reach agreement on how to tackle weak oil demand amid a new coronavirus wave.
OPEC+ had originally been due to lop the cap by 2 million barrels a day from January, but that proved too much, even though oil prices rose 27% in November.
Then it was suggested that the group would roll over oil cuts of 7.7 million bpd, or 8% of global supplies, at least until March 2021.
But reports later emerged of opposition from Russia and some smaller producers who are facing financial strains.
Reuters reported that the production cap would be decided on a monthly basis, which is a recipe for more instability.