Although some countries are satisfied with the OPEC+ decision for higher oil output next year, the group failed to address the problem of countries exempted from the deal by placing the oil market into more uncertainty over how the extra barrels from these countries will be absorbed, political risk and oil analyst, Jose Chalhoub, said Friday.
After a two-day postponement of meetings due to production rate differences between member countries, the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, approved an incremental increase of 500,000 barrels per day (bpd) from January 2021 to balance oil markets struggling with a supply glut and weak demand.
The total production cut will be brought down to 7.2 million bpd in January. The group will then meet monthly to assess market conditions and decide on further production adjustments for the following month, which will be capped at 500,000 bpd.
“The OPEC+ decision of the production cuts satisfied the members which needed high production levels, however, failed to assess the situation of Iran, Venezuela and Libya which are exempt from the output cuts and how the extra barrels from these countries will be absorbed,” Chalhoub told Anadolu Agency.
Chalhoub recalled that the OPEC+ meetings had been tough as usual due to deep splits between member countries that prefer higher production levels such as Kazakhstan, Nigeria, Iraq, Russia and the UAE.
He said the UAE had always been in favor of a rollover of the current 7.7 million bpd production cut policy. “It's no secret that the country supports more barrels added to the market as it was one of the overproduced countries.”
According to the oil analyst, the result was a rather surprising move but not a defeat for Saudi Arabia, which supported a rollover of the cuts for three months.
“Saudis are one of the few countries that can handle the current market conditions, even with the recent move of adding around 1.5 million bpd during the first quarter of 2021,” he said.
Despite all twists and turns, ups and downs, Chalhoub said in a period when the global energy market is marked clearly by a transition to other types of renewables energies, “the members of OPEC surely won't want to stay on the bench.”
'It is evident that there were some signs of exhaustion and friction among OPEC members during the current meetings, like, Saudi Arabia proposing to resign as co-chair of the ongoing OPEC+ meeting -- reflecting in some way the difficulty of keeping a strategy for a long period of time,” he added.
The oil analyst affirmed that raising the production level could be useful for just a very short term but warned not for the long term, as some countries have been facing economic and financial hardships caused by the pandemic.
-Geopolitically tense time for OPEC+ meeting
While uncertainties caused by the pandemic are still lingering, Chalhoub said the geopolitical risks also created bumps on the road for OPEC members’ meetings.
“OPEC meetings came at a geopolitically tense time in the Middle East and the Gulf region,” he said.
“While on one side we watch the developments with the arrival of Joe Biden to the White House and a potential reset of the denuclearization deal with Iran, on the other side, we see the still-fragile peace deal in Libya and frictions between the Al Saud House and the UAE,” he said, noting that the region had recently faced security risks and threats against oil facilities in the region.
By Firdevs Yuksel and Sibel Morrow