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OPEC+ ministers adjourn without deal on February production levels

·3-min read
The OPEC+ ministerial meeting comes after the Covid-19 pandemic tanked the market for crude in 2020

Members of the OPEC group of oil producers and their partners ended discussions on Monday without agreement on production levels for February, as divisions opened up between the linchpins of the two groups, Saudi Arabia and Russia.

Ministers adjourned after three hours of video-conference talks, with discussions expected to restart on Tuesday at 1430 GMT.

The OPEC+ ministerial meeting came after the Covid-19 pandemic tanked the market for crude in 2020.

Despite a slight recovery of prices towards the end of last year, the 13 members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and their ten allies, led by Russia, are still suffering under a highly volatile market.

After their last videoconference summit, held from November 30 to December 3, the OPEC+ members agreed to raise production levels by half a million barrels per day (bpd) in January.

At the same meeting, OPEC+ agreed to meet at the beginning of each month to decide on any adjustments to production volumes for the following month.

That agreement "paved the way for a gradual return of 2 million barrels per day to the market over the coming months," OPEC's general secretary, Mohammed Barkindo, said on Sunday.

But Bjornar Tonhaugen, analyst at Rystad Energy, Russia and Saudi Arabia brought "different agendas" to Monday's meeting as to how to proceed.

"While Saudi Arabia, supported by most OPEC+ members, aims at keeping oil output steady in February, Russia this time seems to have had enough," he said.

"Russia wants an increase of 500,000 bpd next month, the maximum monthly rise that the existing deal allows," according to Tonhaugen, who added: "Going back to nada from that for Russia will be very difficult".

- 'Killjoy' warning -

Speaking at the beginning of Monday's meeting, Saudi Energy Minister Prince Abdulaziz bin Salman spelled out his country's much more cautious stance.

He told his counterparts that "as we see light at the end of the tunnel, we must at all costs avoid the temptation to slacken off in our resolve".

At the risk of being seen as a "killjoy", he emphasised continuing uncertainty and fragile demand and urged others: "Do not put at risk all that we have achieved for the sake of an instant but illusionary benefit."

OPEC members typically meet twice a year at the cartel's headquarters in Vienna, but last year, summits were scheduled more frequently to maintain a strong influence on the oil market amidst the pandemic.

Despite demand remaining uncertain, analysts have said that OPEC+ demonstrated that it can manage the market.

Prices for both North Sea Brent Crude and West Texas Intermediate (WTI) crude hit ten-month highs on Monday but pulled back at the start of Monday's meeting before closing on $51.20 and $47.80 respectively.

Though far lower than the prices seen at the start of 2020, crude is well up on the lows seen last year, particularly in March, when Moscow and Riyadh embarked on a brief but intense oil price war that caused prices to plummet.

Russia and Saudi Arabia are respectively the second and third biggest oil producers in the world after the United States.

On April 20, WTI crude collapsed to minus $40.32 per barrel -- meaning producers paid buyers to take the oil off their hands.

Relations between the two oil giants have eased since then, with the Russian and Saudi energy ministers meeting in mid-December in a display of unity.

It remains difficult, however, to predict the evolution in demand due to developments in the pandemic, with the virus continuing to spread and vaccination campaigns getting off to a slower start than hoped for in some regions.

Despite the heft of the OPEC+ club, countries outside the system have a major impact on the oil market; principally the United States which is still producing 11 million barrels of crude per day.