Meanwhile, Chevron announces capital and exploration cuts: File Image/PixaBay
The Organization of the Petroleum Exporting Countries' (OPEC) indecision about the need to extend production cuts established in the first wave of the Covid pandemic was cited as yet another day of oil prices declines; but as was the case in the previous two sessions, the declines remained minimal.
Brent fell 15 cents to $48.10 per barrel while West Texas Intermediate dropped 17 cents to $45.11.
Although it failed to compromise on an output policy for the rest of next year, OPEC and Russia agreed to ease their output cuts from January by 500,000 barrels per day (bod); this means the difference between the current cuts of 7.7 million bpd to 7.2 million bpd, or 7 percent of global demand.
Any sign that the group is struggling to reach an agreement could weigh on prices
ANZ Research said in a note, "Any sign that the group is struggling to reach an agreement could weigh on prices."
Analysts had been hoping for an extension of the 7.7 million bpd cut until at least March, but the impending arrivals of various effective Covid vaccines not only has encouraged an oil rally but questioned the need to keep a tight rein on production policy.
Alexander Novak, deputy prime minister for Russia, told media OPEC would now convene monthly to decide on output policies after January, with monthly increases not exceeding 500,000 bpd; he said this would allow the cartel "to stop and pause and review what needs to be done in order not to hurt the market."
Despite the disappointment in some quarters over the OPEC compromise, the news of the week remains the remarkable effect the breakthrough in Covid vaccines is having on the crude market: the nearest December Brent futures on Thursday traded at a higher level than the same contracts for December 2022, surging to the highest premium since February.
Plus, thanks to growing demand from Asia, the more immediate parts of both Brent and WTI curves are also showing signs of strength. according to Bloomberg; too, the market structure has also flattened as producers take advantage of higher prices to boost their hedging levels.
Still, the devastation caused by the government imposed Covid lockdowns are very much apparent: Chevron Corp. in a statement on Thursday said its capital and exploration budget will be $14 billion to $16 billion annually from 2022 to 2025, down 27 percent from the mid-point of its previous forecast.
The cuts reflect this year's drop in crude and include declined spending on its $45 billion Tengiz oil project in Kazakhstan; by contrast, expenditures will rise in the Permian Basin and the Gulf of Mexico.
Chevron's announcement comes three days after Exxon Mobil Corp. said it will reduce capital spending to $25 billion per year through 2025, a $10 billion reduction from its pre-pandemic target.