In a recent article on OPEC+ (available here) I went through the Saudi Arabia’s actions during the recent COVID-19 crisis. Just in order to be precise in how events unfolded, which may be interesting and valuable for some readers, here is a detailed timeline of events.
Events prior to mid-2019:
- when oil prices stabilized in mid-2017 they were deviating in the comfortable level of $60-80 per barrel till the end of 2018;
- after prices went down sharply an OPEC+ ministerial meeting was convened in December 2018 – it was decided that there will be voluntarily curbs to production with OPEC reducing output by 0.8 million barrels per day (mbpd) and non-OPEC participants by 0.4 mbpd (see);
- OPEC+ mostly adhered to the plan and re-iterated their commitment in March 2019 (see) and July 2019 (see).
September 2019 – Taking One for the Team:
- after a short rebound prices started to go down again so a further reduction of output – in the form of significantly overdoing the curbs accepted December 2019 – was agreed upon in August 2019 (see);
- it was Saudi Arabia’s bold decision to reduce production single-handedly by 1.35 mbpd in September while virtually all the other participating nations maintained output unchanged or almost unchanged;
- prices stabilized and went up until the end-2019 so production resumed;
- in December 2019 expecting an unstable market in the future due to the evolving COVID-19 pandemic OPEC+ agreed to a further – to the figures agreed in December 2018 – 0.5 mbpd reduction in output to be split among all member plus an additional 0.4 mbpd reduction by several countries but Saudi Arabia mostly.
March 2020 – The Price War and Its Aftermath:
- the market started to look extremely fragile in the end-2019 as the COVID-19 pandemic started swaying major world economies and prices went down in early 2020;
- the emergency meeting in early March recommended OPEC+ a reduction additional to previously agreed cuts of 1.0 mbpd by OPEC and 0.5 mbpd by non-OPEC;
- however, this time Russia did not manage to find an agreement on further production cuts (see and see )
- in response instead of all the earlier accepted cuts Kuwait, Saudi Arabia, and UAE increased their production by nearly 2.35 mbpd (0.25, 1.8, 0.3) instantly;
- prices plummeted to the levels last seen in early 2000s;
- talks between Saudi Arabia and Russia resumed shortly: in April 2020 a comprehensive cuts package was agreed upon with main takeaways being the following (see for preliminary agreement and see for final agreement):
- all OPEC+ members base production was considered to be equal to the levels of October 2019, except for Saudi Arabia which got its base output level increased from 9.9 to 11.0 mbpd and Russia which got its base output level lowered from 11.5 to 11.0 mbpd;
- for 1st two months a total decrease of 9.7 mbpd was agreed upon;
- for the period July-December 2020 a reduction of 7.7 mbpd was accepted ;
- 5.8 mbpd adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022;
- additional output reduction from Saudi Arabia, UAE, Kuwait, and Oman equal to about 1.2 mbpd in June;
- it was agreed that countries that were not adhering to the earlier quotas need to compensate a for previously overproduced volumes, e.g. Kazakhstan to compensate about 0.7 mbpd (see).
January 2021 – Playing Along Again?
- from January 2021 participating countries decided to adjust production by 0.5 mbpd from 7.7 mbpd to 7.2 mbpd;
- in March 2021 an exception was made for Russia and Kazakhstan, which were allowed to increase production insignificantly, in order to balance seasonal consumption;
- at the same time UAE complained that its reduction in output was unfair and cited the need to start making work the investments made in the last years in increasing its production capacity;
- initially Saudi Arabia declined the UAE’s request trying to keep the recently reached cartel’s cohesion but later UAE’s reference production level was increased by 0.3 mbpd starting in May 2022, at the same time Saudi Arabia’s and Russia’s baseline production was also increased by 0.5 mbpd, and Iraq and Kuwait got 0.15 increases both;
- starting August 2021 overall production is to be increased by 0.4 mbpd monthly until the curbs that are still in place are phased out (the current output cuts of 5.8 mbpd expected to be phased out by late 2022), in December 2021 market developments to be assessed again.