BAKU, Azerbaijan, Aug.10
By Leman Zeynalova – Trend:
With demand growth stalling, our model suggests the margin for error is becoming increasingly thin in 4Q20, with a resulting implication that OPEC+ might be facing another decision around October, Trend reports citing the US JP Morgan Bank.
The Saudi-Russia alliance with its divergent oil price objectives will be key to the price outcome, reads the report released by JP Morgan.
“OPEC+’s transition to a rolling monthly evaluation of the market by the key monitoring group led by Saudi Arabia and Russia coupled with heavy messaging around compliance signals the alliance’s desire to keep markets tight in an effort to draw inventories while simultaneously maintaining prices in a range that does not overstimulate the swing US production or higher cost non-OPEC supply,” reads the report.
Accordingly, were demand to crater meaningfully in between the meetings, OPEC+ has signaled it is ready to take action if prices fall too far below $40/bbl, said JP Morgan.
“The new more tactical and data-dependent strategy—not dissimilar to the world’s central banks—is a notably different approach to inventory management than the traditional policy spanning multiple months. The same approach, however, leaves the group open to inevitable interpretation of what configures a tight market. The Russian perspective has been that the parameters of the OPEC+ deal should be determined exclusively based on the oil market fundamentals and not on a price target. Russia with its growing influence in the alliance is more comfortable with around $40/bbl Brent price. Standard break-even prices are often misleading as countries can typically run fiscal deficits. The size and duration of such deficits naturally depend on current account balances, FX reserves, and, importantly, the available support from oil stabilization funds,” reads the report.
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