BAKU, Azerbaijan, March 3
By Leman Zeynalova – Trend:
On the supply side, action by OPEC+ will be the key factor in setting prices, Trend reports citing Fitch Solutions.
In January, the group abandoned their pre-agreed production schedule and instead adopted a process of monthly adjustments to their collective cut. After a 500,000b/d increase in output that month, they committed to adjust their production in increments not exceeding +/-500,000b/d in any given month, returning a net total of 2.0mn b/d in 2021. The group is holding output steady in February and March, with the exception of Russia and Kazakhstan, which have been allowed to raise their production by 65,000b/d and 10,000b/d, respectively, per month. To offset these increases and to counteract some temporary weakness in demand, Saudi Arabia volunteered an additional cut of 1.0mn b/d, underlining its strong commitment to the deal,” reads a report released by Fitch Solutions.
In light of current price movements, the company’s expectation is that on the next meeting on March 4, the group will opt for a 500,000b/d increase in output in April, while Saudi Arabia will end its voluntary cut. Moreover, we believe that the bulk of the 2.0mn b/d will be returned in H121.
“The major wildcard for OPEC is Iran, which is not a participant of the production cut deal. Our current forecast shows 7.3 percent annual average growth in 2021, rising to 39.7% the following year. The forecast assumes that the US and Iran return to compliance with the 2015 nuclear accord, with Washington lifting its nuclear-related sanctions on Tehran. Risks to the view have risen, with both sides currently demanding that the other take the first steps towards compliance. While both US President Joe Biden and Iranian President Hassan are in favour of negotiations, hardline elements in Iran, led by Ayatollah Ali Khamenei, generally oppose.
The current rise in oil prices will bolster the hardliners’ stance, blunting the economic impetus behind reengagement, while the potential election of a hardline president in Iran’s June 2021 elections further clouds the outlook. Nevertheless, export levels have been heavily curtailed and the economic strains on Iran will remain severe. As such, it is our view that they will agree to fully comply with the deal, assuming that steps towards compliance are synchronised with the US – via, for example, the use of temporary sanctions waivers – and that the US does not seek to impose significant further conditions on Iran, such as demands relating to its ballistic missile program or its strategic activities via its regional proxies. In support of our view, Biden has been relatively guarded in his statements on these issues and has not made any demands that would substantially narrow the space for reengagement,” said Fitch Solutions.
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