Oil prices on Thursday were on track to hit their highest closes since early March after sources said OPEC and Russia agreed to a modest output increase of 500,000 barrels per day (bpd) from January onwards.
The increase means the Organization of the Petroleum Exporting Countries (OPEC) and Russia, a group known as OPEC+, would move to cutting production by 7.2 million bpd, or seven percent of global demand from January, compared with current cuts of 7.7 million bpd.
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The OPEC+ producers, however, failed to find a compromise on a broader and longer-term policy for the rest of next year.
Brent futures rose 63 cents, or 1.3 percent, to $48.88 a barrel by 1:01pm EST (18:01 EMT). US West Texas Intermediate (WTI) crude rose 49 cents, or 1.1 percent, to $45.77.
That puts both benchmarks on track to close at their highest levels since March 5 – before most countries imposed lockdowns to stop the spread of the coronavirus.
OPEC+ met on Thursday to work on policies for 2021 after talks earlier in the week reached no conclusion on how to tackle weak oil demand amid a new wave of coronavirus infections.
OPEC+ had been widely expected to roll over oil cuts of 7.7 million bpd, or eight percent of global supplies, at least until March 2021.
But after hopes for the speedy approval of COVID-19 vaccines spurred a rally in oil prices at the end of November – Brent futures gained 27 percent in November – some producers questioned the need to tighten oil policy.
Those higher prices in November prompted US producers to boost output for a third week in a row last week for the first time since June 2019, reaching 11.1 million bpd, according to government data.
“With US oil output on the rise, OPEC+ couldn’t allow the Americans to win market share at their expense,” said Edward Moya, senior market analyst at OANDA in New York.
The premiums of front-month Brent and WTI over the same month in 2022, meanwhile, reached their highest since February 2020, signalling future price uncertainty.
Four OPEC+ sources said the group would now gather every month to decide on output policies beyond January and monthly increases are unlikely to exceed 500,000 bpd.
Monthly meetings by OPEC+ will make price moves more volatile and complicate hedging by US oil producers.