Oil rising sharply after recent OPEC decisions and US 2021-01-06T16:48:19 Oil Rising Sharply Oil rising sharply after recent OPEC decisions and US low inventories The American Petroleum Institute (API) announced Tuesday the decline of 1.663 million barrels of crude oil in US crude oil inventories for the week ending January 1. While inventories witnessed a decrease of 4.785 million barrels of crude oil inventories for the previous week ending on December 25 as well, while the US Energy Information Administration (EIA) recorded a decrease of 6.1 million barrels. Factors that affected oil prices US crude oil prices rose on Tuesday after news of Saudi Arabia volunteering cuts in its oil production, and international political tension over Iran’s seizure of a South Korean ship intensified. Brent crude Oil futures rose $ 2.51 (or 4.9%) to $ 53.60 a barrel. US West Texas Intermediate (WTI) crude for February delivery closed up $ 2.31, or 4.9 percent, to settle at $ 49.93 a barrel on the New York Mercantile Exchange. Saudi initiative in favor of oil stability Saudi Arabia implemented additional voluntary cuts in oil production by 1 million barrels per day in February and March. These cuts come within the framework of an agreement to persuade producers from the group consisting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies to keep production stable, amid fears that the new closure of the Coronavirus will harm the demand for oil. OPEC resumed talks on Tuesday after reaching a dead-end over oil production levels in February this week. Results of the last OPEC meeting After talks were halted on Monday, the OPEC meeting was extended to Tuesday 5 January 2021, and the group agreed to raise oil production by 75,000 barrels per day from January levels, according to the OPEC press release after the meeting. Saudi Arabia’s late announcement Saudi Arabia’s late announcement after the meeting led to a spike in oil prices – as Saudi Arabia voluntarily cut an additional 1 million barrels per day in February and March above its current quota – all at a time as OPEC allies increase production. Not only did OPEC agree to production levels for February, but also to production levels for March. The March production level will see an additional 120,000 bpd increase from February levels, or 195,000 b / d from January levels. Production quotas for March have already been set, and production quotas for April will be decided at the February meeting. In the previous meeting in December, total production cuts were changed to 7.2 million barrels per day for the month of January instead of 7.7 million barrels per day. But in addition to Saudi Arabia’s voluntary cuts, total production cuts in February will reach 8.125 million barrels per day, and the total cuts in March will reach 8.05 million barrels per day. Regarding Saudi Arabia, there are no changes to the official production quota for February or March. There are no changes to the shares of the Emirates or Iraq. For OPEC, there are no changes for February to individual quotas. Consequently, all production increases are going to non-OPEC countries, such as Kazakhstan and Russia. Indeed, Russia will increase its production from 9.119 million barrels per day in January, to 9.184 million barrels per day in February, and 9,249 in March. And the allies are the only ones who will get an increase in production quotas during the next two months, and therefore OPEC bears more burdens in the process of reducing production, which means that Russia will have a role in the coming days, especially since OPEC is not the only influence on the market. Regardless of the reasons for the decision and how it happened, the oil market witnessed a good recovery, as prices rose in the afternoon, and US West Texas Intermediate crude rose by more than 5%, and Brent by nearly 5%. Expectations of a recovery in the oil market in 2021 After the oil industry collapsed in 2020, there were signs of stability, and the slow recovery in crude oil prices and for the oil companies began. Oil prices are currently cautiously in the $ 50 range as a new wave of lockdowns has brought the Western world to a standstill again. However, oil demand in Asia is returning to pre-epidemic levels and the market is starting to stabilize. Shares of major companies like Exxon and Shell have risen since the beginning of the trading year. Reconnaissance Energy Africa began to outperform, as it is a small company that has secured oil and gas rights to an entire sedimentary basin in Namibia and Botswana – both very friendly to oil exploration, with very low ownership fees (5%) and the potential to discover an estimated 120 billion barrels of oil. Continuing concerns about the impact of the Coronavirus on oil According to an internal document issued by OPEC on Monday, in which it sheds light on the downside risks and stressed that “the re-application of measures to contain the Coronavirus across continents, including complete closure, limits the recovery of oil demand in 2021.” After the spread of the Coronavirus with such ferocity, it led to a decline in global demand for oil, and the Kingdom of Saudi Arabia entered into a dispute with Russia over production quotas, as the latter is looking to raise the level of production while the former considers that the time is not ripe to raise it, which led to disputes that affected prices. And it made oil fall into the 1930s. Now, despite these recent decisions that supported oil, there is still pressure on the commodity, which has been suffering since 2020, as the epidemic with its new strain strikes large places around the world, infections increase on a daily basis, and more stringent restrictions are imposed to confront the virus.