BAKU, Azerbaijan, Jan.8
By Leman Zeynalova – Trend:
Saudi Arabia’s surprise voluntary oil output cut unveiled at OPEC+ meeting has lifted oil prices, but even so GDP growth will probably be weaker in Q1 than previously expected, Trend reports citing UK-based Capital Economics research and consulting company.
“After much acrimony and an extra day of talks, OPEC+ eventually reached an agreement whereby output quotas for Russia and Kazakhstan were nudged up. That was quickly followed by a surprise announcement that Saudi Arabia will undertake a voluntary, unilateral output cut of 1mn bpd in February and March. Oil prices have risen by around 5 percent since, with Brent closing in on $55pb,” the company said in its latest report.
Capital Economics believes that from the Saudi perspective, the rally in the price of oil, if sustained, will go a long way to offsetting the hit to oil export revenues from lower output.
“As a result, the impact on budget and current account positions will be broadly neutral and the government will not be forced to implement further austerity. That said, lower oil production will hit GDP mechanically via a reduction in output in the mining sector. We estimate that GDP growth in Q1 will be around 3%-pts weaker than would otherwise have been the case. We will revise our GDP forecasts in our forthcoming Outlook. OPEC+ will meet in March to decide on output quotas from April onwards. While Saudi Arabia has been willing to shoulder the burden of production cuts so far, it’s not clear if it will remain willing to do so once COVID-19 vaccine rollouts gather pace, containment measures are lifted and global oil demand recovers more strongly. That risks a repeat of the events in March last year where OPEC+ discussions fell apart and triggered an oil price war,” reads the report.
OPEC+ agreed to lift oil production by 75,000 barrels per day over January levels.
But Saudi Arabia’s late announcement after the meeting sent oil prices soaring—that Saudi Arabia would voluntarily cut an additional 1 million barrels per day in February and March above its current quota—all while OPEC’s allies get to ramp up production.
The OPEC+ agreed not only for the production levels for February but for March as well. March’s production level will see an additional increase of 120,000 barrels per day over February levels, or 195,000 bpd over January levels.
With March’s production quotas already set, the February meeting, therefore, will set production quotas for April. The previous meeting held in December adjusted the total production cuts to 7.2 million bpd for January, from 7.7 million bpd before.
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