Opec+ expected to delay output hike

30 November 2020
The coalition is likely to weigh positive news about coronavirus vaccine development against new lockdown measures and shale output in the US

The alliance of Saudi Arabia-led Opec and a group of Russia-headed non-Opec oil producers are widely expected to delay an output hike at its meeting on 30 November-1 December in Vienna.

The Opec+ coalition is likely to weigh positive news about coronavirus vaccine development against new lockdown measures and resurgent shale oil and gas drilling in the US.

Alliance leaders Saudi Arabia and Russia sealed a historic deal in April to collectively reduce crude output by 9.7 million barrels a day (b/d) in May and June. The agreement was revised in June to extend the 9.7 million b/d output cuts throughout July.

A mid-July deal saw members agree to ease the output cuts to 7.7 million b/d from August until end-2020. The alliance is currently restraining output by 7.7 million b/d.

As part of the agreement, the cuts taper to 5.8 million b/d from January 2021 through April 2022.

The planned 1.9 million b/d January production ramp-up looks set to be delayed, according to market expectations, with analysts differing on whether that would be for three months or six months.

Global oil benchmark Brent crude, which has been trading consistently above the $40-a-barrel mark so far in November, pared gains on 30 November on the eve of the vital Opec+ meeting. Brent crude was trading at $47 a barrel as of 12:30pm UAE time.

Expectations from Opec+ meeting

Opec+ is expected to seriously take into account a potential oversupply situation owing to a second wave of lockdowns and restrictions.

The grouping is likely to err on the side of caution and heed the market’s anxieties stemming from a resurgence of coronavirus cases worldwide and unite behind a three-month delay in its next phase of easing until April 2021.

Not much price action is anticipated post-meeting, given markets have all but priced in a three-month extension to the current 7.7 million b/d output cut arrangement.

Crucial geopolitical issues, such as a new US presidency from January 2021, Iran economic sanctions, and the situations in Libya, Nigeria and Venezuela, and their impact on oil markets are likely to be discussed.

Compliance levels by Opec+ members to the output cut agreement, a matter fundamental to the effectiveness of the mechanism, will be discussed exhaustively.

While a potential extension of the current output cut level is the most likely outcome of the meeting, one issue that could prove to be particularly thorny is the individual country output quotas —whether all countries will have the same quotas for the additional three months. Some may be asked to cut more, while others may be allowed to cut less.

One country in question is Libya, which is adamant that it cannot curb production until it is consistently producing 1.75 million b/d.

Nigeria has asked – much like Russia – to have condensates (natural gas liquids) omitted from its quota calculation.

Saudi Arabia has also reportedly secretly expressed its displeasure with the UAE in the last Opec+ meeting over a presumable breach of quota by the latter. Reported overproduction by the UAE is likely to be taken up, with Saudi and Russia expected to hear Abu Dhabi’s concerns.

According to media reports, Saudi Arabia called for an impromptu and informal meeting of officials from key Opec+ countries, ahead of the scheduled meeting, to discuss and have back-door negotiations on some of the matters, particularly deal adherence.

The informal meeting started late on 29 November and ended in the early hours of 30 November. Details of the outcome are awaited.

 Libyan oil output tops 1 million barrels a day

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