Oil Prices Rise on Gentle Production Hike

04 December 2020

    Oil prices rose for a second day in a row as OPEC and its allies introduced a gentle production hike, learning from previous fiascos and avoiding market shock. 

     

    OPEC+ agreed to increase production by 500,000 barrels per day beginning in January, bringing total production cuts at the start of 2021 to 7.2 million barrels per day, and causing crude prices rose on the deal, as opposed to falling, as the oil production group displayed atypical market sensitivity.

     

    “OPEC+ at all costs needed to avoid a taper tantrum, so a small hike in January was acceptable for the Saudis. A monthly increase of 500,000 barrels per day in January will replace the 1.9 million increase that is currently in place…OPEC+ will decide monthly on how much more oil should come online. OPEC+ avoided oversupply concerns, as a 0.5 million increase in output allows stockpiles to decline over the next few months. If the global economic recovery is stronger than expected, you can expect to see terrible compliance next year and eventually the OPEC+ pact will be terminated”, Ed Moya, an analyst at New York’s OANDA, commented. 

     

    As a result of the hike, WTI rose 0.6%, to $45.64 per barrel, following its previous 1.6% rise in the prior session. Brent, in turn, saw an almost 1% gain to $48.71 after Wednesday’s 1.8% gain. Overall in the month of November, WTI has increased 27%, and Brent- 28%, highest for both since May.


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