Oil producers do themselves a favour

by George Hay via Reuters Breakingviews

Saudi Arabia has wised up. The de facto leader of the 13-strong Organization of the Petroleum Exporting Countries, plus 10 allies including Russia who collectively constitute “OPEC+”, agreed on Sunday to end output cuts in late 2022 instead of next April. 

The quid pro quo for a deal that will help them to navigate the uncertain course of the pandemic: Riyadh reluctantly allowed an increase in Abu Dhabi’s production. 

This makes Saudi look a bit weak. But the kingdom and Russia will also be allowed to pump more, while Abu Dhabi didn’t get as much of an increase in its allocation as it wanted. The alternative to compromise was seeing the United Arab Emirates flounce out, the OPEC+ deal implode, and over 5 million barrels of daily production flood the market. That would have triggered a far bigger decline in oil prices than Monday’s 2.5% drop to below $72 a barrel, which may also reflect renewed fears over virus hits to demand. 

It was smarter for producers to slowly add 2 million barrels a day by the end of 2021, and enjoy the fact that green considerations are reducing non-OPEC producers’ scope to grab market share. 

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