The Organization of Petroleum Exporting Countries (OPEC) reached a deal Sunday to phase out 5.8 million barrels per day of oil production cuts by September 2022 as prices of oil hit their highest levels in over two years. Crude oil futures fell sharply Monday to end below $70 a barrel with U.S. prices posting their biggest daily percentage loss since September 2020.
The agreement followed a standoff that began in early July and a rejection to cut oil production by Saudi Arabia. Saudi Arabia demanded an increase in its own maximum volume recognized by OPEC; however, OPEC demanded that Saudi Arabia follow the group’s output agreements. Members cut the same percentage from their baseline; so having a higher baseline would allow Saudi Arabia a greater production quota.
Concerns over the COVID-19 delta variant continue to muddy the waters of the demand outlook, hindering OPEC’s ability to increase production without pulling down prices further. The agreement and increase in production is expected to keep prices down at least through the second half of 2021.
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