LONDON: Brent crude oil futures neared $50 on Friday after producers reached a compromise deal to nudge output from next month.
The Organization of the Petroleum Exporting Countries (OPEC) and their allies, known collectively as OPEC+ on Thursday agreed to soften output cuts from January by 500,000 barrels per day to be followed by further increases that have not yet been agreed each month.
It means that OPEC+ has committed to cut production by about 7.2 million barrels per day (bpd) from January compared with the existing cuts of 7.7 million bpd. The agreed reduction represents about 7 percent of global oil demand.
“This week’s compromise reflects a determination to avoid a repeat of the price war in March and April this year,” said Wood Mackenzie Vice President Ann-Louise Hittle.
The consultancy expects Brent to average at least $45 next month as a result of the agreement.
The oil price also received a lift from increased support for a $908 billion coronavirus stimulus package in the US congress and building optimism around the rollout of new vaccines that are expected to provide a boost for global air travel and with it demand for aviation fuel.
“Oil demand is likely to rebound strongly in 2021 along with the roll-out of vaccines. There are good reasons to be bullish for oil,” SEB analyst Bjarne Schieldrop said.
While the compromise deal has helped to support the oil price, analysts expect further tests for OPEC+ harmony in the months ahead.
“Now it faces the tricky task of reconsidering production at meetings each month during Q1 2021 and avoiding similar disagreements over compliance and production,” said WoodMac’s Hittle.
Brent was up more than 1 percent at $49.23 a barrel in late afternoon trade in London. Meanwhile, West Texas Intermediate was up by a similar measure at $44.08.