Russia and Kazakhstan will increase oil production in February and March at the expense of Saudi Arabia as Riyadh seeks to keep the OPEC+ alliance together and maintain a tighter oil market as a resurgent pandemic cools demand.
Russia and Kazakhstan had been pushing OPEC+ during their latest meeting that began on January 4 to increase total oil output in February by another 500,000 barrels a day (bpd).
However, Saudi Arabia opposed the idea amid concern a new strain of the coronavirus could force some countries to reimpose lockdowns, curbing demand and hurting prices.
OPEC+ includes the 13 members of the Saudi-dominated OPEC cartel and 10 allied oil-producing nations led by Russia.
The disagreement between Moscow and Riyadh, which forced the meeting to convene for a second day, raised some concern about the unity of the alliance, whose fragile nature was laid bare during a similar dispute last March that led to the sharpest one-day oil price decline in more than two decades.
The OPEC+ agreement reached on January 5 allows Russia and Kazakhstan to increase oil production by a combined 75,000 bpd in February and another 75,000 bpd in March.
Saudi Arabia will voluntarily cut production by 1 million bpd during those two months while all other members will keep their production steady.
The agreement led to a rally in oil prices with Brent crude climbing 5 percent to $53.65.
Oil and gas account for the lion’s share of Russian export revenue.
Saudi Arabia and Russia locked horns during an OPEC+ meeting in March 2020 as Moscow refused to agree to Riyadh’s proposal for an output cut even as the pandemic was beginning to erode global oil demand.
Russia feared that cutting output would only serve to help high-cost U.S. shale companies. Saudi Arabia responded by announcing it would ramp up oil production, causing the price of crude to drop on March 9 by more than 30 percent, the steepest one-day decline since 1991.
Oil prices continued to tumble throughout March and early April, falling below $10 a barrel for some brands, until OPEC+ agreed to a historic cut of 9.7 million bpd, or about one-tenth of global production.
The alliance has since increased oil output several times. During their previous meeting in December, Saudi Arabia agreed to an increase in OPEC+ total output by 500,000 bpd in January.
The latest agreement would reduce the group’s total output cut to about 7 million barrels a day.
OPEC+ agreed to reconvene in March to discuss April output.
With reporting by Reuters, AP, and Energy Intelligence