Page 4 - MEOG Annual Review 2021

MEOG JANUARY MEOG

Saudi comes to

OPEC’s rescue

The Kingdom has acted alone to prop up prices and while it is handing
production share to Russia, Saudi has shown the market who is boss.

OPEC+ SAUDI Arabia surprised the oil market last week below its 9.119mn bpd quota.
when Energy Minister Prince Abdulaziz bin Sal- The prince has long been a proponent of cau-
man announced that Riyadh would make a vol- tious progression, favouring conservative rather
WHAT: untary additional production cut of 1mn barrels than ambitious moves.
Saudi Arabia per day (bpd) during February and March. By making the move, it suggests that Saudi is
unexpectedly announced The news followed drawn-out talks between seeking to avoid being manipulated by the mar-
it would cut production by OPEC+ partners to find a workable solution ket like it was in Q2 2020 as demand collapsed
1mn bpd during February for next month’s production, which had previ- alongside prices.
and March, while Russia ously been predicted to increase by a cumulative Meanwhile, as ever, the moving parts behind
and Kazakhstan are to be 500,000 bpd. the scenes in Saudi leave room to wonder who is
allowed to make marginal Instead, only Russia and Kazakhstan will in charge of decision-making. Having said that
increases. be allowed to raise output, by 65,000 bpd and the cut was a “political and sovereign decision”,
10,000 bpd respectively each month, giving total Abdulaziz said in an interview with Bloomberg
WHY: OPEC+ cuts of 8.125mn bpd for February and that “this is not a decision of the government”,
Riyadh is concerned 8.05mn bpd for March, up from the reduction of instead suggesting that it had been taken by state
about the return of 7.2mn bpd instructed for January. oil giant Saudi Aramco.
demand growth and Speaking to press following the meeting, “Aramco … is supposed to sell their crude
appears to be acting Prince Abdulaziz said: “This gesture … will help and remunerate the government for the sale of
proactively, having been and support friends and colleagues to continue their crude based on trying to maximise their
forced to respond to the this unprecedented commitment of achieving sales price. It’s purely commercial rather than
market in Q1 and Q2 last 100% compliance, and help those countries that political choice or directed by a political aspira-
year. are still [trailing] with their compensation to tion or objective,” he said.
compensate over January, February, March and While Aramco does indeed seek to achieve
WHAT NEXT: April.” the highest netback for its crude sales, which in
While the same fireworks Abdulaziz noted that the reduction would part is why exports to the US last week amounted
should not be expected at comprise both domestic and international sales, to zero, the company’s production levels are
the next OPEC+ meeting, later clarifying that Saudi production for Feb- strictly dictated by Abdulaziz’s Ministry of
all eyes will be on ruary and March would average 8.119mn bpd, Energy as per the terms of its concession for all
compliance, with Saudi
likely to take a more
stringent approach.

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