Saudi Arabia has surprised the oil market with a large reduction in its output in February and March, carrying a greater burden of OPEC+ cuts while others hold steady or make small increases.
The kingdom will make an extra cut of 1 million barrels a day, Saudi Energy Minister Prince Abdulaziz bin Salman said on Tuesday. That more than offsets the combined 75,000 barrel-a-day increase Russia and Kazakhstan will be allowed to make in each of those months. The rest of the group will hold output steady.
The Saudi pledge makes for a tighter market than traders had been anticipating and sent crude surging to a 10-month high in New York. It shows how worried the kingdom is about the impact of Europe’s resurgent coronavirus pandemic on oil demand, but also its determination to avoid a new price war with Russia.
Both countries get at least part of what they wanted — the additional price support desired by Riyadh and the production boost Moscow had been pushing. Still, the contortions that were necessary to secure a consensus after two days of OPEC+ talks show the fragility of the alliance.
The de-facto leaders of OPEC+ have different priorities, with Russia wanting to boost production before US shale drillers fill the gap, while Saudi Arabia prefers to sacrifice volume in exchange for higher prices.
The agreement means the global market will get far less supply than traders had been expecting prior to this week. The OPEC+ meeting opened on Monday with a proposal from Russia for a 500,000 barrel a day output hike next month, which was opposed by most other members.
The alliance had been scheduled to discuss similar-sized increases in March and April, but that plan has been superseded by the latest accord.
Oil prices surged, with West Texas Intermediate crude jumping as much as 5.3 per cent to $US50.13 a barrel in New York, the highest since February 26.
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Source: Thanks smh.com