Page 5 - MEOG Week 49

MEOG COMMENTARY MEOG

assume a more than 40% reduction on current would delay any production increases for at least
levels. three months. These hopes were dashed when
According to an internal OPEC document it became apparent that not all OPEC members
seen by S&P Global Platts, Iraq’s January target felt the same way, after the group failed to reach
will be 3.857mn bpd, up 53,000 bpd from the a consensus on policy during discussions on
country’s quota between August and December. November 30. The meeting of the wider OPEC+
While Jabbar noted that Iraq’s intention is group was subsequently pushed back from
to raise prices rather than sales volumes, the December 1 to 3.
country’s Finance Minister and Deputy Prime Despite this disappointment, Brent futures
Minister Ali Allawi has publicly questioned the closed at $49.25 on December 4, up from $48.71
long-term feasibility of maintaining the status on December 3 and $48.25 on December 2.
quo of restraining oil production while the gov- Prices have been supported not only by the deal
ernment operates at a monthly deficit of around but also by growing optimism on the COVID-19
$3bn. vaccine front.
It is worth noting that Jabbar has repeatedly OPEC+ has agreed that oil ministers will
reiterated Iraq’s commitment to the cuts, though meet in the first week of every month in the
compliance has continued to be poor. new year to discuss policy. This should enable
Meanwhile, with Iraq set to launch its new the group to respond more quickly to changing
Basrah Medium crude grade in January and market conditions.
the UAE having already embarked on an initi- All eyes will be on how quickly vaccine pro-
ative to make its Murban crude a benchmark to duction and distribution can be scaled up over
strengthen the Emirates’ position as the region’s the coming months. By only agreeing upon Jan-
financial hub, it is perhaps unsurprising that uary’s production levels, the alliance will have
these countries will continue to be the main areas time to assess progress in vaccinations and the
of concern for OPEC over the coming months. impact this has on demand.
In any case, the cartel and its non-OPEC allies While the OPEC+ deal is certainly a pos-
will be hoping that the roll-out of an anti-coro- itive, the fact that policy will be readjusted
navirus (COVID-19) vaccine will stimulate sig- on a monthly basis leaves a lot of uncertainty,
nificantly greater oil demand in 2021. however.
“This development leaves US shale producers
Flexibility and uncertainty and other market participants with less certainty
While cracks may be widening in the oil produc- about OPEC+’ exact production targets going
ers’ alliance, the compromise shows that none of forward,” Rystad Energy analyst Bjornar Ton-
the main players are willing to risk upending the haugen commented. “This lack of clarity could
market oil recovery for individual gains just yet. prove to be bullish longer out, as the OPEC+ put
“This week’s compromise reflects a deter- is not firmly in place for an extended period of
mination to avoid a repeat of the price war in time.”
March and April this year,” Wood Mackenzie’s “Traders now have a blurry outlook for plan-
vice-president Ann-Louise Hittle said. “We ning ahead, which can bring price volatility
expect Brent to hold a floor near $40 per barrel going forward, as speculation will again prevail
in January and average at least $45 per barrel for on trading floors in absence of a concrete mid-
the month with this agreement.” term plan,” he continued. “Hedging of shale
Expectations were growing in the weeks companies for future output is also made more
leading up to the OPEC+ talks that the group difficult under this uncertainty.”™

Week 49 09•December•2020 www. NEWSBASE .com P5