Baku, Azerbaijan, Dec.3
By Leman Zeynalova - Trend:
Expectations from the upcoming OPEC+ meeting are for coordinated cuts to reduce an oversupplied market and to realign with slower growth in demand, Fitch Solutions Macro Research (a unit of Fitch Group) said in its report.
The 175th Ordinary Meeting of OPEC on December 6th will provide key indicators for the oil market going into 2019 and beyond, said the company.
“Our most likely scenario is an increase to 200 percent compliance of 2016 cuts totaling an additional 484,000 barrels per day to come off the market. The expectation behind this cut is our belief that OPEC members would be willing to support prices if the cuts in production were not detrimental to overall revenue,” said the report.
Fitch Solutions estimates that this level of cuts would average about 2.1 percent of November production numbers which would not substantially affect revenue. “In addition this would help establish a floor for prices and not risk a Trump backlash for Saudi Arabia as prices should only mildly increase.”
A second possible scenario of the company is centered on the idea that a significant 2 million barrels per day or above could come off the market due to combined OPEC+ action.
“We believe that this scenario is less likely due to the coordination and agreement needed between OPEC. We cite the higher starting point of oil prices and lesser willingness to substantially reduce production beyond 7.5 percent of current levels as the key rationale needed to affect a moderate price movement. Support from the full OPEC+ contingent would have to be a key part of the reduction with average cuts of more than 3 percent.”
Fitch Solutions believes consensus among the full OPEC+ for a coordinated cuts to these levels would be difficult as would OPEC agreement to raise compliance to the 300 percent needed to reach this level of cuts.
“The third scenario we see possible is no action from OPEC. We believe this would not align with recent history nor a desire to maintain relevance. We see inaction as an indicator of their unwillingness to set market sentiment and fundamentals which would mark sea change in policy,” said the report.
OPEC leaders will gather in Vienna on Dec. 6 to discuss how to manage the oil output, supply glut and demand slowdown.
For the first time ever, in 2016, the Member Countries of OPEC coordinated with 11 non-OPEC oil producing countries in a concerted effort to accelerate the stabilization of the global oil market through voluntary production adjustments, which amounted to approximately 1.8 million barrels per day.
The Declaration was an outcome of the Joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting held on 10 December 2016 and was effective for an initial period of six months. The Second Joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 25 May 2017, decided to extend the voluntary production adjustments for another nine months commencing 1 July 2017. At the third joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 30 November 2017, it was agreed to amend the Declaration of Cooperation so that it will take effect for the entirety of 2018.
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