OPEC plus was due to raise output by 2 million barrels per day (bpd) in January 2021, about 2% of global consumption as it moves to ease this year’s record supply cuts. With demand weakening, OPEC plus has been considering delaying the increase.
Russia is likely to agree on a rollover of current output for the first quarter if needed, a source familiar with the issue said, and would prefer to decide later on extending for the second quarter.
“It looks like the extension is needed,” the source said, citing “possible price drops and demand uncertainties” amid the second wave of the virus.
Oil has rallied in the past weeks, rising to its highest since March this year, near US$49 a barrel, on hopes that coronavirus vaccines will lead to higher demand. This hasn’t changed OPEC plus thinking around the extension.
“This increase in prices is about sentiment, but we need to extend to have solid market fundamentals to support the prices,” said one. “So far, the best choice is the three-month extension.”
Still, enthusiasm for extended cuts is not universal, delegates and analysts say.
A potential complication is the United Arab Emirates’ wish for a higher OPEC plus quota, Goldman Sachs said this week.
Nigeria also wants a higher quota, and Iraq has talked about being exempt from 2021 reductions.
Goldman said it did not expect such a push from the UAE to derail the extension, and Iraq has said it will support any unanimous OPEC plus decision.
There are several technical meetings this week to prepare the ground for ministerial gatherings on Monday and Tuesday. All meetings are virtual due to the pandemic.
Christyan Malek, Managing Director and Head of oil & gas research at J.P. Morgan, said he expected OPEC+ plus to delay the increase by up to six months despite the price rally, with Saudi Arabia possibly offering deeper voluntary cuts until March next year.
“Inventories are not coming down as quickly as expected. Lockdowns are moving east to west, with more lockdowns expected in the US,” he said.
Malek said the departure of Donald Trump as US President, who was seen by some in OPEC as a friend after he helped bring Russian President Vladimir Putin into the OPEC plus output cut in April, would actually boost the producer alliance.
“Without Trump, OPEC plus is getting stronger rather than weaker,” he said. “Putin is using OPEC plus to get closer to Saudi Arabia, as the departure of Trump creates a bit of a vacuum in the US-Saudi relations.”
According to another report, Saudi Arabia and Russia summoned OPEC plus ministers who oversee their oil production cuts for last-minute talks on Saturday, as the cartel prepares for a decision on whether to delay January’s output increase.
A clear majority of OPEC plus watchers expect the group to maintain their supply curbs at current levels for a few months longer due to lingering uncertainty about demand. However, the decision is by no means certain amid public complaints from Iraq and Nigeria, and private discord with the United Arab Emirates.
The two leading members of OPEC and its allies, Russia’s Deputy Prime Minister Alexander Novak and Saudi Energy Minister Abdulaziz bin Salman, requested an informal video conference with their counterparts from the Joint Ministerial Monitoring Committee, which includes Algeria, Kazakhstan, Iraq, Nigeria and the UAE, according to a letter seen by Bloomberg.
The unscheduled gathering comes just two days before a full OPEC ministerial meeting on November 30, which will be followed by OPEC plus talks on December 01. The JMMC met online as recently as November 17, but that ended without any kind of recommendation about delaying the January supply increase.
On Thursday, Algerian Energy Minister Abdelmadjid Attar, who this year holds OPEC’s rotating presidency, told Bloomberg that the group must remain cautious because the recent surge in oil to US$45 a barrel in New York could prove fragile.
A separate meeting of a committee of OPEC technical experts considered data that pointed to the risk of a new oil surplus early next year if the cartel and its allies decide to go ahead with the production increase. The 23-nation OPEC plus is scheduled to ease its 7.7 million barrels a day of production cuts by 1.9 million barrels a day from January 01, 2021
