Page 8 - DMEA Week 48 2020

DMEA COMMENTARY DMEA

OPEC talks fail to

reach consensus

Some traders were considering the cuts extension a done deal, but there is
some division in the oil cartel

GLOBAL AN initial round of talks among OPEC members sway over production levels.
took place on November 30, without the group While Saudi Arabia is reportedly in favour
WHAT: reaching any consensus on how much supply to of an extension of current cuts, Russia is under-
OPEC talks reached keep offline next year. A meeting of the wider stood to support a gradual increase in output
to reach a consensus OPEC+ group was subsequently delayed by two beginning in January. Moscow was largely
on a cuts extension, days until December 3, according to reports, to blamed for talks breaking down on OPEC+ cuts
and a OPEC+ meeting give ministers more time to strike a deal. in March, causing oil prices to plunge.
has been delayed until OPEC+ group had been due to taper existing Brent futures were down 1.2% on November
December 3. cuts by 2mn barrels per day (bpd) from January. 30 at $47.59 per barrel, on the lack of OPEC con-
But a global resurgence in coronavirus (COVID- sensus, while West Texas Intermediate was 1%
WHY: 19) cases, causing the recovery in oil demand to lower at $45 per barrel. Both benchmarks saw
Saudi Arabia backs stall, has led the group to reconsider this plan. further declines on December 1.
extending cuts but Russia In recent months Russia and Saudi Arabia, Analysts at Norway’s Rystad Energy view
does not, and the UAE is the de-facto leaders of OPEC+, both indicated OPEC+ developments this week in two lights.
growing frustrated with they were open to delaying the easing of cuts to “The bearish way of looking at things is that
non-compliant members. help prop up prices. Growing confidence that OPEC+ is far from settled on postponing its
existing cuts will be extended for longer, as well planned production increase from January, a
WHAT NEXT: as encouraging news on the COVID-19 vaccina- development that the market thought as almost
A cuts extension is tion front, have helped spur a rally in oil prices ‘a done deal’ prior to Monday’s meeting,” Rystad’s
needed to avoid a 2mn over recent weeks. head of oil markets, Bjornar Tonhaugen, said.
bpd oversupply in the oil However, OPEC members were apparently “The bullish way of eyeing this is capitalising on
maret next year. unable to agree on policy among themselves, the fact that Tuesday’s OPEC+ meeting is post-
let alone with Russia and other producers in the poned for a few days. This shows that there is still
OPEC+ group. determination from key OPEC+ producers to
The meeting on November 30 is understood negotiate and push for a deal to amend the stand-
to have lasted long into the evening. Earlier in ing agreement and not raise output as planned,
the day, Algerian Energy Minister Abdelmad- to protect prices.”
jid Attar claimed that the group had agreed to Rystad still sees an extension to existing cuts
extend existing cuts by three months from Janu- as the most likely outcome, although it does not
ary. But no other members confirmed this. Cit- expect OPEC+ to agree on anything longer than
ing ministerial sources, Bloomberg also reported a three-month delay. VTB Capital (VTBC) in
that a consensus was close, only for Saudi Ara- Moscow likewise puts an extension as its base-
bian Energy Minister Prince Abdulaziz bin Sal- case assumption.
man Al-Saud to threaten to resign as co-chair of Edinburgh-based Wood Mackenzie esti-
an OPEC+ panel in frustration. mates that the oil market would be stuck with
a 2mn bpd oversupply in the first quarter if cuts
Cracks appearing are now extended, which would get bigger in the
OPEC and its allies have been instrumental second quarter. But if OPEC+’s current output
in driving the oil market recovery so far this is maintained, the oversupply would only be
year. But cracks are beginning to appear in the 800,000 bpd.
alliance. “With a rollover of current production,
There is growing frustration over some downward pressure on oil prices would put
members’ failure to stick to their commitments, Brent at risk to slide back towards $40 per barrel
including the UAE and to a greater extent Iraq after recent gains on news of a vaccine helped
and Nigeria. While the UAE has historically lift prices,” Wood Mackenzie vice-president
been one of OPEC’s most loyal members, it has Ann-Louise Hittle said in a note. “Given these
recently shown its determination to ramp up oil stakes, we believe the group is likely to reach a
output and is thought to have been mulling its compromise to delay the increase in production
departure from the cartel in order to hold greater for three months.” ™

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