More recently, though, producers big and small have watched warily as virus cases soared in the U.S. and Europe and vaccine efforts, at least in the West, moved slower than many expected. A new variant of the virus, first identified in the U.K., has sent cases soaring there and has since been identified in many other countries, including the U.S.
Saudi Arabia’s move comes after it has ceded in recent years some of its oil-market clout to Russia. The two have long had a hot-cold relationship working together to stabilize prices. In recent months, Russia insisted on being able to open its taps, fearful it could lose market share to shale producers. Saudi Arabia pushed to move more cautiously.
Christyan Malek, head of oil-and-gas research at JP Morgan, said the Saudi cut could hurt the kingdom’s market share in the short term, but that it also underscored its unrivaled ability to quickly turn on and off the spigot to move prices. “A small cut now is no big deal,” he said. “Small pain for massive gain later.”
Earlier Tuesday, an informal group of some of the world’s biggest oil producers effectively agreed to maintain their collective oil output at current levels through February, warning of heightened risks to the global economy—and to oil demand—from a resurgent coronavirus.
In a statement Tuesday confirming the deal, the consortium, which includes the 13-member Organization of the Petroleum Exporting Countries and a Russia-led group of 10 producers, said “rising infections, the return of stricter lockdown measures and growing uncertainties have resulted in a more fragile economic recovery.”
The group has said it is committed to eventually restoring almost 10 million barrels a day—or about 10% of pre-Covid-19 global demand—of production that it cut at the beginning of the pandemic to steady prices. But so far it has restored just 2.5 million of those cuts. In recent months, it has signaled that restoring further production would take much more time than anticipated.
The OPEC-plus deal wasn’t straightforward. It publicly accommodated Russia’s insistence that it be allowed to open its own taps to protect market share. OPEC-plus said Russia and Kazakhstan, which had both opposed keeping overall group production flat, would be allowed to increase output by a combined 75,000 barrels a day in both February and then another 75,000 barrels a day again in March.
The monthly allowance—accounting for just 0.075% of 2019 global demand—was interpreted by markets as a face-saving concession to Russia. Saudi Arabia, meanwhile, told delegates it would agree to compensate for the small boost by deepening its own cuts, meaning the group as a whole wouldn’t lift production, according to delegates. But the kingdom didn’t signal to fellow OPEC members or Russia the scale of its compensating cut.
At the height of last year’s coronavirus outbreak, OPEC-plus agreed to cut output by a record 9.7 million barrels a day and envisioned restoring it in increments of 2 million barrels a day assuming demand would return. In the summer, the group moved to return the initial 2 million barrels, and last month agreed to add a further 500,000 barrels a day in January.
Russia initially was opposed to keeping current production levels and had pushed for an increase of another 500,000 barrels a day for February, according to delegates familiar with the discussion. Moscow argued that oil demand would return as world-wide vaccination programs start to make a dent in the pandemic, delegates said.
But Saudi Arabia and most other producers wanted the current output restrictions extended, people familiar with their view said, since they were concerned about the return of lockdowns and what they considered the slow rollout of vaccines. Algeria, for instance, pushed for them to be maintained until the end of March, they said.
—Collin Eaton in Houston contributed to this article.
Write to Summer Said at [email protected] and Benoit Faucon at [email protected]
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