Saudi offers extra cut as OPEC+ agrees oil output rollover

FILE PHOTO: A 3D printed oil pump jack in front of the OPEC logo in this illustration picture
FILE PHOTO: A 3D printed oil pump jack is seen in front of displayed OPEC logo in this illustration picture, April 14, 2020. REUTERS/Dado Ruvic/Illustration

January 5, 2021

By Vladimir Soldatkin, Shadia Nasralla and Alex Lawler

MOSCOW/LONDON (Reuters) -Saudi Arabia will make voluntary cuts to its oil output in February and March as part of a deal to persuade most OPEC+ producers to hold production steady amid concerns that new coronavirus lockdowns will hit demand.

Two sources from OPEC+ producers said Saudi Arabia would cut output by more than 400,000 barrels per day (bpd) in the next two months on top of its existing cuts.

Two producers – Russia and Kazakhstan – will be allowed to bump up their output by a combined 75,000 bpd in February and a further 75,000 bpd in March, Kazakhstan’s energy minister said.

The rest of OPEC+ will hold output steady, meaning the group’s overall cuts would amount to around 7.05 million bpd by March, a draft OPEC+ statement seen by Reuters should, excluding the planned voluntary additional cuts from Saudi Arabia.

The unusually complicated deal by OPEC+, which combines OPEC producers and others including Russia, follows debate that forced a second day of negotiations.

Russia and Kazakhstan had pushed for the group to raise production by 500,000 barrels per day (bpd) while others wanted no increase.

An internal OPEC+ document dated Jan. 4 seen by Reuters highlighted bearish risks and stressed that “the reimplementation of COVID-19 containment measures across continents, including full lockdowns, are dampening the oil demand rebound in 2021”.

Saudi Energy Minister Prince Abdulaziz bin Salman on Monday urged caution, noting still fragile fuel demand and the unpredictable impact of new variants of the coronavirus.

New variants of the coronavirus first reported in Britain and South Africa have since been found in countries across the world.

OPEC+ producers have been curbing output to support prices and reduce oversupply since January 2017.

As COVID-19 hammered demand for gasoline and aviation fuel and slashed benchmark Brent oil prices, OPEC+ was forced to boost its output cuts to a record 9.7 million bpd in mid-2020.

This month, with Brent holding above $50 per barrel, OPEC+ raised output by 500,000 bpd, narrowing its cuts to 7.2 million bpd.

Brent was trading up 4% at above $53 per barrel at 1734 GMT. [O/R]

(Reporting by Alex Lawler and Ahmad Ghaddar in London, Rania El Gamal in Dubai, Vladimir Soldatkin and Olesya Astakhova in Moscow; writing by Dmitry Zhdannikov; editing by Emelia Sithole-Matarise and Jason Neely)