OPEC+ agrees to increase output in January 2021

The 12th OPEC and non-OPEC Ministerial Meeting held last week via videoconference agreed on a compromise that saw the group agree to an increase in output by 500,000 bpd in January 2021.

The Meeting welcomed the positive performance in overall conformity levels to the production adjustments since it last met in June, and the constructive response from many countries to the compensation mechanism in accommodating their underperformed volumes as agreed at the June ministerial meetings, and later amended in September 2020.

"In light of the current oil market fundamentals and the outlook for 2021, the Meeting agreed to reconfirm the existing commitment under the DoC decision from 12 April 2020, then amended in June and September 2020, to gradually return 2 mb/d, given consideration to market conditions," OPEC said in a statement.

The main outcome was announced by OPEC stating: "Beginning in January 2021, DoC participating countries decided to voluntary adjust production by 0.5 mlion bpd from 7.7 million bpd to 7.2 million bpd."

Wood Mackenzie vice president Ann-Louise Hittle said: “After the initial OPEC session on 30 November, without its non-OPEC partners, signs of discord pointed to doom for the concept of a simple rollover of current levels of production restraint of 7.7 million b/d. Under the April OPEC+ agreement, that restraint was due to ease to a 5.8 million b/d cut on 1 January 2021.During November, the idea of delaying that easing in production restraint took hold. This reflected widespread concerns that weaker-than-expected global demand would lead to a large oversupply in the first quarter, unless OPEC+ held back from the nearly 2 million b/d planned increase.”  

OPEC announced that it would hold monthly OPEC and non-OPEC ministerial meetings starting January 2021 to assess market conditions and decide on further production adjustments for the following month, with further monthly adjustments being no more than 0.5 million bpd.

Hittle added: “This week’s compromise reflects a determination to avoid a repeat of the price war in March and April this year. The compromise agreement, if continued through February and March by adding 0.5 million bpd to each of these months on top of the previous month’s increase, leads to an oversupply of 1.6 million bpd for Q1 2021."