As late as spring, Opec+ had sent the oil price on an epic downward spiral due to disagreements. The corona demand shock was accompanied by production increases – a perfect storm! The oil cartel reacted belatedly and significantly reduced production. Last week there was another showdown in the oil world. This time it was not about production cuts, but about production increases. In other words, the question of how much can be increased without counteracting the oil price stabilization of the last weeks.
With a possible increase in production of two million barrels per day, the stakes were once again high, but Opec+ presented a production increase plan („tapering of the cutbacks“) that came as a positive surprise. According to this plan, production will be increased by 500,000 barrels per day in January. In addition, it will be decided on a monthly basis whether production will be further increased or reduced again in the order of 500,000 barrels depending on market conditions. We consider this to be a reasonable approach, although it cannot be a permanent condition. Iraq, for example, would have liked to increase its production even more significantly. In addition, the US frackers will also pump more oil again. Saudi Arabia and Co. will not accept this as a long-term permanent state.
All in all, this is good news for the oil price. In the short term, the high inventories and the still weak demand speak for a small price setback. Over the next twelve months, however, the strong economic recovery we expect should lead to an upturn in prices.