Saudi Production Cut Pushes Oil Prices HigherBy MBN Staff | Tue, 01/05/2021 - 19:02
Oil prices have jumped on Tuesday after Saudi Arabia shocked the OPEC+ group by volunteering to reduce its output by 1MMb/d in February and March ahead of the slow economic recovery forecast this year.
WTI oil went above the US$50 mark for the first time since February, reaching US$50.15 per barrel at lunchtime CST while Brent hit US$53.80 per barrel, its highest price since late February this year.
This surprise move from Saudi Arabia, one of the group’s de-facto leaders, was in stark contrast to Russia, fellow group leader, which wished to introduce an extra 500Mb/d. The OPEC+ group, of which Mexico is a part, reaffirmed its decision to introduce 500MMb/d into the global market this month and agreed to allow Russia and Kazakhstan – both of whom wanted to ramp up production - to incrementally increase their output into February and March.
The group made it clear that “rising infections, the return of stricter lockdown measures and growing uncertainties have resulted in a more fragile economic recovery that is expected to carry over into 2021.”
“The Meeting recognized that market sentiment has been buoyed recently by vaccine programs and improved asset markets, but underscored the need for caution due to prevailing weak demand and poor refining margins, the high stock overhang and other underlying uncertainties,” added the press release.
Mexico will remain at the 1.753MMb/d production limit it had agreed several months ago when it refused to reduce its output by 400MMb/d as requested, with the US taking up Mexico’s slack instead. Mexico’s representative Energy Minister Rocío Nahle tweeted that Mexico had “maintained its production quota”, though in reality, the country has been unable to recover its output from forced drop-offs in April. The most recent available CNH figures show that Mexico produced 1.63MMb/d in October compared to 1.747MMb/d in March.
Mexico City and the State of Mexico are on red light, implying the maximum level of restrictions in the country’s pandemic traffic light system, meaning only essential industries are open and working. Climbing COVID-19 infection rates in Mexico and abroad are hampering hopes that the world economy can bounce back quickly during the beginning of this year. Though Mexico’s vaccination strategy began in December, only two of the three vaccinations that it needs to carry out its plan have so far been approved by the country’s health authorities.