OPEC and a Russia-led coalition of oil producers said they would keep most of their production cuts in place through next month, holding a lid on global supply despite rising prices.
The decision surprised traders, who were expecting the group to meter out more oil to the world after prices have climbed steadily from pandemic lows last year. Brent, the international crude benchmark, was trading in the early afternoon up more than 5%, at $67.55 a barrel, its highest level since January 2020. West Texas Intermediate futures, the U.S. benchmark, were up 5% at $64.60 a barrel, its highest intraday level since April 2019.
The agreement, reached Thursday after an online meeting between the Saudi Arabia-led Organization of the Petroleum Exporting Countries and a group of non-OPEC producers led by Russia, is the cohort’s latest shift in a sometimes careening debate over how the ebb and flow of the coronavirus pandemic is affecting the global economy and, by extension, oil demand.
Earlier in the day, Saudi Arabia and Russia were considering a different proposal to boost output, according to people familiar with the matter. Saudi Arabia has been separately planning to ease in coming months a unilateral production cut announced in January, The Wall Street Journal reported last month. The kingdom said Thursday that it would keep those cuts in place, at least through April.
For the better part of a year, OPEC delegates have tried with limited success to gauge the pandemic’s effect on demand. In a series of meetings at the end of last year and early this year, they have zigzagged between optimistic forecasts that they say merited more output and dire warnings over continued lockdowns that require reining in production.
Under the agreement reached Thursday, most members of what is known as the OPEC-plus alliance agreed to keep their output unchanged, with small exceptions for Russia and Kazakhstan, amounting to about 150,000 barrels a day combined. That brings the group’s overall agreed cuts to 6.9 million barrels a day, down from more than nine million barrels a day at the start of the crisis.
The move is a victory for Saudi Energy Minister Abdulaziz bin Salman, who has consistently urged caution on the pace of a global recovery from the pandemic, while also periodically accommodating Russia’s eagerness to open taps wider on any sign of recovery.
“We are not fast, we are not furious, we are cautious,” he told a press conference after the meeting Thursday.
Russia, by contrast, has continuously expressed more upbeat views and pushed for production increases. “If we look at the situation, it is much better than a year ago, [or] than it was in the fall,” Russian Energy Minister Alexander Novak said at a technical meeting Wednesday, according to delegates attending.
In an illustration of the fast-changing assessment within the group, Riyadh and Moscow had earlier Thursday debated a separate scenario bringing back one million barrels of oil a day, according to officials familiar with the discussions. Saudi Arabia would have contributed half of that fresh production, while OPEC-plus countries would pump the remainder under the proposal. In the end, though, Prince Abdulaziz convinced his counterparts to mostly hold pat, in part by granting Moscow a small exemption from the curbs, delegates said.
Prince Abdulaziz told delegates that Saudi Arabia agreed not to roll back its own cuts—a move that might have softened oil prices—as a reward for OPEC-plus members that he said didn’t cheat and overproduce amid earlier agreements, delegates said. Such cheating has undermined previous deals.
Another dynamic: Saudi officials believe the kingdom is better able to hold its own against America’s shale-oil producers, which were laid low by the pandemic price crash. These producers traditionally have been able to increase production quickly once prices rebound, threatening global market share.
Christyan Malek,
head of oil-and-gas research at JP Morgan Chase & Co., said the Saudi decision indicates Riyadh’s confidence that U.S. shale companies for now can’t take advantage of the price rally, especially after being hit by a winter storm that knocked out some 2.5 million barrels a day of production in Texas and one million barrels a day in other oil-rich states. Mr. Malek said OPEC-plus restraint is bringing “prices to a point where the Saudis are back in control.”
In recent months, similar OPEC-plus meetings have been contentious, and negotiations have remained fluid through days of talks. Saudi Arabia surprised markets—and other delegates—at the end of an OPEC-plus meeting in January with a decision to slash its production by one million barrels a day through the end of March.
OPEC-plus cuts have helped bring international oil prices back above $60 a barrel for the first time in a year. Demand has picked up, too, especially in Asia and particularly in China, which has recovered more quickly than other regions from the economic fallout from the pandemic.
OPEC expects world oil consumption to rise by 4.72 million barrels a day in the fourth quarter of 2021, compared with the first three months of the year. The International Energy Agency said last month that a recovery in demand would outstrip production in the second half of the year, prompting “a rapid stock draw” and erasing the glut of crude that has built up since the pandemic began.
The economic consequences of the pandemic have whipsawed thinking inside the OPEC-plus group. Around the time Covid-19 first emerged in China, Saudi Arabia and Russia were engaged in an effective price war, each opening their taps wide to win market share over each other.
When the economic damage from the virus became clearer—as much of the world started shutting down factories and businesses and curtailing global travel—Riyadh and Moscow came to terms with each other. They led their respective producing groups in record cuts, equaling more than nine million barrels a day, or nearly 10% of the world’s daily demand in 2019. They promised to restore those cuts in two-million-barrel-a-day installments starting last summer.
As lockdowns eased, they unleashed the first wave of that restarted production but then retrenched as cases started to rise again in much of Europe and the U.S. late in the summer and into the fall.
Write to Benoit Faucon at benoit.faucon@wsj.com and Summer Said at summer.said@wsj.com
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