Oil Prices Surge on New Output Curbs by OPEC+

Oil prices surged on Tuesday, supported by a new agreement by major producers to further reduce production levels amid a new wave of the Coronavirus pandemic.

The Organization of the Petroleum Exporting Countries (OPEC) and other top producers, forming an alliance known as OPEC+, reached an agreement on Tuesday to curb output in February, as suggested by Saudi Arabia, with the Kingdom voluntarily choosing to apply larger production cuts.

Meanwhile, Russia and Kazakhstan could both raise production by a combined 75,000 barrels per day (b/d).

Brent crude futures for March delivery rose by $2.51, or 4.9%, to settle at $53.60 per barrel.

Meanwhile, the West Texas Intermediate (WTI) crude futures for February delivery added $2.31, or nearly 4.9%, to close at $49.93 per barrel, after exceeding earlier in today’s session the $50 mark for the first time since the beginning of the pandemic.

Moreover, newly-imposed sanctions by the United States provided more support for oil prices.

Last month OPEC+ increased production by 500,000 barrels per day (b/d), an increase that was well below the expected 2 million b/d rise.

The outlook for the first half (H1) of 2021 is very mixed, according to the Secretary-General of OPEC, Mohammed Sanusi Barkindo, who was quoted by Bloomberg as saying that “there are still many downside risks to juggle.”

Two forces are moving the market, which put pressure on the OPEC+ alliance. On one hand, the rollout of vaccines is helping improve the demand outlook, while the new variant and the rising number of cases amid a new wave that prompted renewed lockdown measures are making for a more gloomy outlook.