In 2020 many of the world’s largest oil producers were forced to channel tactics à la There Will Be Blood just to stay afloat.
For big oil, 2021 is off to a more favorable start.
The U.S. oil benchmark WTI broke $50 on Tuesday for the first time since February on favorable news out of the Middle East.
Saudi Takes The Reigns
We won’t drag you through a full rehash of last year’s oil saga: the pandemic crimped demand — prices went negative — and some poor Robinhood’ers thought Exxon would pay them to fill their gas tanks.
The market ultimately stabilized, but only after major producers agreed to a 10% production cut last April.
Now, with demand returning to baseline levels in some parts of the world, Russia has been aggressively pushing for a production hike.
The News: They didn’t get it. On Tuesday, OPEC and its oil-producing allies agreed to hold output steady, while Russia and Kazakhstan were permitted to add a combined 75,000 barrels per day – a token increase.
The Big News: Saudi Arabia then took the oil market by surprise, announcing it would slash its supply by an extra 1 million bpd in February and March – roughly 10% of its output.
Some analysts said the move simply reflected Saudi Arabia simply acting as a responsible steward for the broader oil industry.
Prince Abdulaziz told Bloomberg, “We have the responsibility of looking after the market, and we will take all necessary actions…those who have listened are now bearing the fruits; the others – good luck with their ouching.”
Bjornar Tonhaugen of consultant Rystad Energy A/S said Saudi Arabia, “is not only offering a soft pillow to the oil market, but also a full set of blankets, bed covers and most likely the bed itself.”
The Flip Side: Other analysts cautioned the concession from Saudi Arabia more likely reflects the expectation of weak demand as additional coronavirus lockdowns take hold in Europe.