OPEC+ unity and bad behavior by Iran conspired to drive West Texas Intermediate oil prices back above $50 a barrel today for the first time since February.
In a twist, Saudi Arabia is making a move considered very magnanimous, acting as the group’s leader and stepping up to the plate by volunteering to take production cuts on their own to allow for more production from Russia and Kazakstan that would raise output by 75,000 barrels per day.
In turn, the Saudis would reduce their output by as much to keep the group’s output steady throughout February. The Saudis also suggested that they may even cut more to keep the market balanced, talking about a unilateral cut of 1 million barrels a day.
The move is giving the market confidence that the group has learned from some of the mistakes it made in the past.
February 2020 was the start of the OPEC+ oil production war when Russia and Saudi Arabia fought over the size of production cuts to respond to the oil demand drop from Covid 19. That caused WTI oil to crash below zero for the first time ever. Since then they started to work tighter and along with help from recovering global demand engineered production cuts that successfully reduced global oversupply.
Now with oil prices rising again, some oil producers, mainly Russia, had an itchy finger to start raising output once again. Russia was proposing a 500,000 barrel a day increase starting in February but most of the other OPEC producers, other than the UAE, were against an increase.
Russia said they had concerns about losing market share but OPEC+ was worried their desire to raise production by 500,000 barrels a day, as Europe and Germany and Japan look to extend COVID-19 shutdowns, could cause problems. Their concern was that if OPEC+ raises output at a time when demand might stagnate it could reverse the tightening that has occurred in global oil supply over the recent months and could cause oil prices to crash.
In addition, the market is reacting to Iran lashing out against the world community. That is reducing the odds that President-elect Joe Biden could justify getting back into the Iranian nuclear accord as he has promised.
Iran has resumed the production of 20% enriched uranium at its underground nuclear facility in Fordow. The Iranian Parliament voted to annihilate Israel. Now Iran has seized a South Korean oil tanker in the Persian Gulf, taking its crew as hostages.