BAKU, Azerbaijan, Dec.7
By Leman Zeynalova – Trend:
OPEC+ decision allows maximum flexibility but it also means more uncertainty for the market, Spencer Welch, director of the oil markets and downstream team in the London-based IHS Markit told Trend.
He noted that now OPEC+ has to meet every month and there will be speculation on what they are going to do. “This is one more unknown to add to the oil market equation.”
“They have agreed to review and adjust each month, starting with production increase of 500,000 b/d in January 2021. This shows that there are tensions with OPEC+ on how much to increase and how fast. It also shows that the oil market is dynamic and so OPEC+ is uncertain on what is going to happen and how much oil they need to keep off the market to keep a balance.
The uncertainties are: Biden victory and its impact on Iran and Venezuela oil sanctions and also impact on US crude production, COVID-19 and how fast vaccines will be distributed and oil demand will return to “normal”,” he said.
Wood Mackenzie vice president Ann-Louise Hittle said that after the initial OPEC session on 30 November, without its non-OPEC partners, signs of discord pointed to doom for the concept of a simple rollover of current levels of production restraint of 7.7 million b/d. “Under the April OPEC+ agreement, that restraint was due to ease to a 5.8 million b/d cut on 1 January 2021.”
“During November, the idea of delaying that easing in production restraint took hold. This reflected widespread concerns that weaker-than-expected global demand would lead to a large oversupply in the first quarter, unless OPEC+ held back from the nearly 2 million b/d planned increase.”
The OPEC+ Joint Ministerial Monitoring Committee (JMMC) will meet in January to consider if the 500,000 b/d cut in restraint should be continued for February, or possibly doubled.
“This week’s compromise reflects a determination to avoid a repeat of the price war in March and April this year.
“The compromise agreement, if continued through February and March by adding 0.5 million b/d to each of these months on top of the previous month’s increase, leads to an oversupply of 1.6 million b/d for Q1 2021.
“We expect Brent to hold a floor near US$40 per barrel in January and average at least US$45 per barrel for the month with this agreement,” Hittle said.
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