OPEC and a group of Russia-led oil producers agreed to increase their collective output by 500,000 barrels a day next month, signaling the world’s biggest producers are betting the worst of a pandemic-inspired shock to demand is behind them.
The deal marks a compromise after sharp disagreements earlier in the week among a group of producers that have acted in relative concert for months, agreeing to cut production deeply to stabilize oil markets. The coronavirus pandemic sapped global demand early this year, tanking prices and straining the finances of big producers such as Saudi Arabia and Russia.
The price rout has also laid low big, publicly traded oil companies like Exxon Mobil Corp. and Royal Dutch Shell PLC, triggering big losses and job cuts. Shell and BP PLC both recently cut their dividend for the first time in years to preserve cash. Chevron Corp. on Thursday said it was joining peers in slashing spending.
In recent weeks, international oil prices have started to bounce back, climbing some 25% since the start of last month. Asian economies have been recovering strongly, boosting oil demand there. Oil investors, meanwhile, have bet on future demand growth elsewhere after a series of promising milestones hit by several Covid-19 vaccines in development. This week, the U.K. authorized one for emergency use, setting in motion the West’s first mass vaccination drive.
By agreeing to ramp up output again, members of the 13-strong Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and a group of 10 other big producing nations led by Russia, are effectively betting the price recovery will continue. The wider group calls itself OPEC-plus.