OPEC and OPECplus Take a Jump on Oil Prices as COVID-19 Cases Worsen


Thursday, January 28, 2021  / 6:16 PM / By Funsho Idowu, Proshare Research / Header Image Credit: Ecographics

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Oil price movements have been steady since the beginning of the year, with Brent oil closing at $55.81 per barrel on Wednesday, January 27th, 2021. So far, Brent crude has appreciated by +7.74% in January 2021. This upward trend could be attributed to the output curb decision reached by OPEC and non-OPEC allies to increase output by 500,000 barrels per day(bpd) in January as part of a plan to taper huge cuts made last year as the effects of the coronavirus pandemic smothered demand (see table 1 and Chart 1 below).

Chart 1YTD Price Movement (Jan 4th - Jan 27th )

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Source: Bloomberg, Proshare Research


Table 1YTD Price Performance 





Weekly Chg














Source: Bloomberg, Proshare Research

Wednesday, 27th Jan, 2020, Brent Crude settled at $55.81 per barrel


Putting pressure on prices is a rise in the global coronavirus cases, with countries struggling to distribute the vaccines to the most vulnerable members of society. Another factor buoying oil prices is the OPECplus compliance with earlier agreements around supply cutbacks, so far the agreements seem to have high compliance. Climbing on the back of the OPEC and the OPECplus actions is the uncertainty surrounding the new United States (USA) President Joe Biden's fiscal stimulus plan.

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COVID-19: Numbing Numbers

The number of COVID-19 cases in the United States crossed the 25million watermark on Sunday 24th January 2021, while the death toll in Britain crossed 100,000 people as the government continued to administer vaccines to reduce the spread of the new variant strains of the virus. On Tuesday 26th January 2021, Indonesia's confirmed that coronavirus cases had climbed above a million affected people. Compared to some other countries, vaccine roll-outs in the European (EU)  have been slow and unimpressive, creating problems from supply chains. Observers note that the figures keep rising, prompting fresh lockdowns and restrictions in the countries, hence lowering oil demand.

OPECplus Output Compliance

On the supply side, OPEC and its allies had agreed on supply cutbacks with compliance at roughly 85% as of January, according to tanker tracker Petro-Logistics. The data suggests that the OPEC group had improved its adherence to pledged curbs. The biggest reductions in January supply were expected from Libya, Iraq, and Nigeria.

As a result of the production cuts, Nigeria's crude oil production tumbled by 155,000 barrels to a record low in December. OPEC's January 2021 report showed that the country's oil production fell to 1.17m barrels per day in December 2020, from 1.33m bpd in November 2020. This will most likely put a strain on depleted domestic foreign currency reserves.

On the other hand, if compliance improves, the oil market would rebalance, thereby propping up prices which would brighten Nigeria's economic outlook.

Biden Administration, Waiting for Mr. President

Newly inaugurated President Joe Biden of the United States seems to be pushing for quick approval of his proposed $1.9trn pandemic relief package, a move interpreted by the market as a clear indication that the new U.S. administration aims at kickstarting a major and speedy economic recovery, which would naturally benefit fuel producers as consumption ramps up.

However, in the long run, the Biden administration could be bearish on fossil fuel as the President looks more to renewable energy and green technology. Among his first actions as president, Biden announced America's return to the Paris climate accord to combat climate change and revoked a permit for the Keystone XL oil pipeline project with Canada.

Furthermore, the administration has expressed commitment to ending new oil and gas leasing licenses on federal lands. These policies are geared towards achieving his net-zero 2050 goal.

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Nigeria looking Elsewhere

Amid the OPECplus cuts, Nigeria has shifted its focus from fossil fuel to condensate and gas production. The swivel in emphasis was to provide a cushion for the fiscal effects of oil output reduction on the federal government's 2021 budget and to comply with agreed crude oil production quota. Analysts note that Nigeria's oil industry has lifted its eyes towards upstream production and midstream distribution for liquified natural gas (LNG), compressed natural gas (CNG), and condensates. The new green era is taking no prisoners, and global policymakers are decoding the energy market's fresh gas messages.

It should be noted that condensates are an extremely light form of oil that mostly occurs as a byproduct of natural gas production, it is mostly used to make petrol. The current production of the condensate in the country is between 270,000 and 350,000 barrels per day. This byproduct is not part of OPEC commitments as the group's quotas only apply to crude oil production and not condensates.

Gas has proved to be a steady and reliable revenue stream during the worst periods of the COVID-19 pandemic in 2020 and still, remains a revenue stalwart in 2021, the production and utilization will be of crucial priority in 2021 as the stubbornly reclusive industry shake off its conservatism and taps into the emerging opportunities in the verdant green energy market.

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