Page 5 - FSUOGM Week 49

FSUOGM COMMENTARY FSUOGM

plans. Meanwhile, OPEC+ partners committed three months. These hopes were dashed when
to a further 168,000 bpd in cuts for the same it became apparent that not all OPEC members
period, with another 566,000 bpd in over-pro- felt the same way, after the group failed to reach
duction unaccounted for. a consensus on policy during discussions on
The UAE, which broke formation in the sum- November 30. The meeting of the wider OPEC+
mer to raise output above permitted levels, was group was subsequently pushed back from
swiftly chastised by Saudi Arabia and quickly December 1 to 3.
improved its compliance. Meanwhile, Iraq, Despite this disappointment, Brent futures
which promised to make compensatory cuts of closed at $49.25 on December 4, up from $48.71
nearly 700,000 bpd during the final four months on December 3 and $48.25 on December 2.
of the year, has continued to increase production Prices have been supported not only by the deal
and has failed to improve compliance, despite a but also by growing optimism on the COVID-19
commitment from the country’s Ministry of Oil vaccine front.
(MoO). OPEC+ has agreed that oil ministers will
Prince Abdulaziz said that the compensatory meet in the first week of every month in the
scheme had not been as successful as the group new year to discuss policy. This should enable
had hoped, but added that members had given the group to respond more quickly to changing
“many assurances” about their commitment market conditions.
and said that the cartel would make a “relentless All eyes will be on how quickly vaccine pro-
quest” to ensure compliance. duction and distribution can be scaled up over
Meanwhile, quota exemptions will continue the coming months. By only agreeing upon Jan-
for Iran, Venezuela and Libya, with Prince uary’s production levels, the alliance will have
Abdulaziz saying that despite the latter’s ram- time to assess progress in vaccinations and the
pant production increase following a ceasefire, impact this has on demand.
it would remain exempt until political stability While the OPEC+ deal is certainly a pos-
had returned. itive, the fact that policy will be readjusted
on a monthly basis leaves a lot of uncertainty,
Flexibility and uncertainty however.
While cracks may be widening in the oil pro- “This development leaves US shale producers
ducers’ alliance, the compromise shows that and other market participants with less certainty
none of the main players are willing to risk about OPEC+’ exact production targets going
upending the market oil recovery for individ- forward,” Rystad Energy analyst Bjornar Ton-
ual gains just yet. haugen commented. “This lack of clarity could
“This week’s compromise reflects a deter- prove to be bullish longer out, as the OPEC+ put
mination to avoid a repeat of the price war in is not firmly in place for an extended period of
March and April this year,” Wood Mackenzie’s time.”
vice-president Ann-Louise Hittle said. “We “Traders now have a blurry outlook for plan-
expect Brent to hold a floor near $40 per barrel ning ahead, which can bring price volatility
in January and average at least $45 per barrel for going forward, as speculation will again prevail
the month with this agreement.” on trading floors in absence of a concrete mid-
Expectations were growing in the weeks term plan,” he continued. “Hedging of shale
leading up to the OPEC+ talks that the group companies for future output is also made more
would delay any production increases for at least difficult under this uncertainty.”™

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