BAKU, Azerbaijan, March 18
By Leman Zeynalova - Trend:
Fitch Solutions Country Risk and Industry Research (a unit of Fitch Group) has revised down following the collapse of OPEC+ deal, Trend reports citing the company.
“Following the OPEC+ deal collapse we have revised down our forecast for Brent crude. On March 6, OPEC and non-OPEC producers failed to reach agreement on a 1.5 million b/d cut that OPEC had proposed in response the continued spread of Covid-19. The existing cut deal - under which around 2 million b/d of supply is currently being held out the market - is set to expire at the end of the month, paving the way for a surge in output from April onwards. We now forecast annual averages of $43 per barrel, $45 per barrel and $49 per barrel in 2020, 2021 and 2022, respectively. This compares to previous forecasts of $62 per barrel, $63 per barrel and $62 per barrel,” reads the report released by Fitch Solutions.
The company recalls that immediately following the OPEC+ meeting, Moscow (which had advocated for an extension of the existing deal, but strongly opposed further cuts) stated that once the deal had expired, it would no longer feel obligated to constrain its output.
“Riyadh responded forcefully, slashing its official selling prices to all regions and announcing plans to raise supply to 12.3mn b/d in April. For Saudi Arabia this marks a major step change in its policy, reversing years of careful market management in favour of an aggressive push for market share. Prices have slumped in response, with Brent crude down by around 50 percent in the year-to-date and by more than 30 percent since the OPEC+ meetings,” reads the report.
Fitch Solutions believes it is unlikely that the current market conditions represent the desired outcome for either Saudi Arabia or Russia and that some miscalculations have been made on both sides.
“Nevertheless, polarized and seemingly intransigent negotiating positions and increasingly hardline rhetoric from both limit the scope for near term resolution,” said the company.
The 178th (Extraordinary) Meeting of the Conference of the Organization of the Petroleum Exporting Countries (OPEC), held in Vienna, Austria, on 5 March 2020, decided to recommend to the 8th OPEC and non-OPEC Ministerial Meeting to extend the adjustment levels agreed at the 177th Meeting of the Conference and the 7th OPEC and non-OPEC Ministerial Meeting for the remainder of the year. It also agreed to recommend to the 8th OPEC and non-OPEC Ministerial Meeting a further adjustment of 1.5 mb/d until 30 June 2020 to be applied pro-rata between OPEC (1.0 mb/d) and non-OPEC producing countries (0.5 mb/d) participating in the Declaration of Cooperation.
However, during the meeting held March 6, OPEC+ failed to reach any agreement on extension of the deal or deepening the cuts further, which led to a significant decline in oil prices.
---
Follow the author on Twitter: @Lyaman_Zeyn