The head of the OPEC+ organisation was in generous and jovial form as he addressed the first press conference of the year, forgoing many of the usual formalities and delivering a surprise production decision to the market.
Both benchmarks jumped around 5% with West Texas Intermediate (WTI) hitting above US$50 a barrel on Wednesday.
Holding on to gains
In Friday trading, WTI was holding on to gains, currently above US$51 while Brent crude was priced close to US$55 a barrel.
The Saudi Arabian energy minister, Prince Abdulaziz bin Salman who is also the Chairman of the Joint Ministerial Monitoring Committee explained that all OPEC+ ministers came to an agreement, adding “we are the guardian of this industry”.
OPEC+ agreed to return 75,000 barrels a day of oil back to the market, but Saudi Arabia announced it would voluntarily cut an additional million barrels a day in February and in March.
So while a few producers can increase supply, particularly Russia and Kazakhstan, Saudi Arabia will withdraw production in the months to come as a “gesture of goodwill made by our leadership, in the name of His Royal Highness the Crown Prince Mohammad bin Salman”.
This was unexpected and was unusual, but the Prince talked of his gratitude for the support of his non-OPEC allies in recent years.
He emphasised the need and intention of all producers to aim towards 100% compliance, getting on the record commitments from Iraq and Nigeria ministers who have over produced in the past.
The Nigerian minister for Petroleum Resources, Timipre Sylva said he believed “that we will be able to liquidate our overproduction figure completely by March when we come back again”.
A “great” present
The Russian Deputy Prime Minister, Alexander Novak said this was “a great new year present, basically to the whole oil industry,” that would help to stabilise the market.
With monthly on-line OPEC+ meetings, Novak said the group wants to see inventories decrease and they would continue to watch production levels with great care as “the market is still very fragile there is still a lot of uncertainties and so our steps should be very carefully placed and very carefully analysed”.
With many countries still in lockdown, no-one is expecting any big jump in global oil demand.
Jobless data from the US improved last week but the number remains above 19 million people out of work.
The president of Prestige Economics, Jason Schenker said this was still a problem for the country.
“As long as the pandemic continues and joblessness remain exceptionally high, social, economic, and political risks remain high.” Schenker says he fears we can expect such grim news, “until effective broad-based vaccine deployment has occurred in 2021”.
Goldman Sach’s Global Head of Commodities Research Jeff Currie, speaking on CNBC, said he still has a US$65 a barrel price target on oil for this year.
He cautioned about the timing of the cut back from Saudi Arabia as we begin the year saying, “this really does tee up for a much tighter market” later in the year.
He encourages investors to look back at the history of the commodity market, adding that the current situation has all the “tell-tale signs of a commodity super-cycle”.
While members of OPEC+ remain optimistic, they are committed to scrutinise the numbers every month and continue their on-line meetings.
Like everyone else, Prince Abdulaziz bin Salman says the ministers are hoping that availability of the vaccine will mean a lifting of many restrictions and “other factors contributing to economic recovery would start to reverse in favour of the market, so we believe that we are on a positive trajectory and we are optimistic about the outlook”.