The OPEC+ alliance is optimistic that it will be able to gradually ease production cuts from January as planned, despite surging coronavirus cases in many countries, Russia’s Energy Minister Alexander Novak said in an article published on Wednesday.
OPEC and its partners led by Russia agreed in April to reduce their combined oil production by 9.7 million barrels per day in response to the demand slump following the outbreak of coronavirus that caused prices to tank. The cuts were relaxed by 2 million bpd starting in August and are set to be eased by another 2 million bpd from January 2021.
“Currently, despite the second wave of the pandemic in a number of countries, my colleagues and I continue to be optimistic and expect we can gradually raise production as per the agreement without harming the market,” Novak said in the article in the energy ministry’s magazine Energy Policy.
The market started balancing with the deal that entered into force on May 1, and July saw the first decline in commercial oil inventories. Oil demand recovered to 90 percent of the pre-crisis level while oil prices stabilized at levels above $40 a barrel Brent, Novak said.
One of the influential members of the OPEC+ alliance, OPEC’s number-three producer the United Arab Emirates (UAE), also said this week that the alliance plans to ease the cuts as of January.
“We believe that this is the calculated volume to cater for the demand coming back,” UAE’s Energy Minister Suhail al-Mazrouei said.
Despite the optimism expressed by Russia and the UAE, the market and market analysts are concerned that with stalling oil demand recovery as COVID-19 cases spike, the oil market will not be able to handle another 2 million bpd of supply if OPEC+ eases the cuts starting in January.
Concerns over the timing of the demand recovery have reportedly prompted OPEC’s top producer and de facto leader, Saudi Arabia, to consider delaying the easing of the production cuts, The Wall Street Journal reported last week, citing senior oil advisers from the Kingdom.
In its monthly report on Wednesday, the International Energy Agency (IEA) warned about a slowing economic and oil demand recovery, saying, “Truly, those wishing to bring about a tighter oil market are looking at a moving target.”