Supported by the OPEC countries, Riyadh has obtained that the production targets for February are not revised upwards. Isolated, Russia had to bend to the will of Saudi Arabia.

Oil prices surged on Tuesday, after hesitating amid tensions between Saudi Arabia and Russia over the level of crude production to be reached in February. The Organization of the Petroleum Exporting Countries and its partners (OPEC+), including Russia, will maintain the production cuts decided last year after the collapse of fuel demand during the pandemic.

In detail, Brent, the European benchmark, gained 4.9% to more than $53, while WTI, the U.S. benchmark, jumped more than 5% to above the $50 mark.

Unilateral cutting

The coalition decided in extremis to increase its production at the margin in February and March, with the volume voluntarily withdrawn from the market rising from 7.2 million barrels per day (mbd) to 7.125. But Saudi Arabia will make a further unilateral reduction of 1 million b/d, more than offsetting the increase of 75,000 b/d for Russia and Kazakhstan.

The meeting of the alliance's ministers, which accounts for half of the world's production, got off to a bad start. The talks, which were due to reach an agreement on Monday, were suspended and postponed until the next day due to unanimous opposition from OPEC members to the Russian proposal to reinject 500,000 barrels per additional day as early as February.

Riyadh plays it safe

OPEC, led by Saudi Arabia, did not want to increase production, but to maintain the current cuts, or even reduce them further in order to support prices strained by the pandemic. Demand for black gold fell by nearly 10% over the year.

"At the risk of being rejointed, I urge you to be careful. The new variant of the virus is an unpredictable and worrying event," Prince Abdulaziz bin Salman warned in his opening speech at the meeting via videoconference.

In the United Kingdom, where the variant was detected first, the health situation is deteriorating at high speed, to the point that Prime Minister Boris Johnson has announced a third lockdown. Investors fear that Europe will also fall victim to a third wave, which will weigh on fuel consumption.

Market shares versus price

Moscow, on the other hand, wanted to continue the strategy adopted in December of increasing production by 500,000 barrels per day every month. "Russia is currently interested in market shares, while a number of other countries give preference to market prices," summed up Iranian Oil Minister Bijan Namdar Zanganeh.

For Moscow, which can be satisfied with a barrel at $50, it is mainly a question of maintaining pressure on the American shale oil sector, whose production costs are higher. Saudi Arabia also does not want to see production across the Atlantic resume. But Riyadh needs more expensive oil to finance its public spending.

Russia isolated

Isolated, Russia had to bow to the common front of OPEC, several countries of the organization having shown their support for Riyadh. From a personal point of view, it is also a victory for Prince Abdulaziz bin Salman who was forced in December to accept an increase in production for January.

In addition, prices are also benefiting from Iran's intention to continue enriching uranium. The likelihood that under these conditions, the United States will lift sanctions against the Islamic Republic's oil exports, even with the arrival of Democrat Joe Biden, is low.