BAKU, Azerbaijan, Dec.2
By Leman Zeynalova – Trend:
The OPEC+ meetings scheduled to be held over November 30-December 1 2020 will likely see the group agree to rollover the current level of output cuts for at least three additional months, providing support to prices over Q1 2021, Trend reports citing Fitch Solutions.
“The reports from the first day of the meetings were not encouraging, with OPEC and its allies failing to agree on whether or not to extend the current level of cuts for longer, despite a framework agreement reportedly having been reached for a three-months extension. This has been followed by murmurs that Saudi Arabia was considering resigning from its post as co-chair of the OPEC+ Joint Ministerial Monitoring Committee. While this could turn out to be a bargaining ploy by Saudi Arabia to get the dissidents on board with the proposed extension, it is also indicative of the growing, visible signs of cracks appearing within the ranks of OPEC+, which brings future compliance to any output cut quotas into question.
“According to the terms of the OPEC+ output cut agreement reached in April, the current cut of 7.7mn b/d will be reduced to 5.8mn b/d starting from January 2021. The proposal to delay the scheduled easing of cuts is believed to have divided opinions across several member states including Saudi Arabia, Russia, the UAE and Kazakhstan for both fiscal and administrative reasons. Based on past decisions by OPEC+, however, the expectation is still for the group to agree to rollover the current level of cuts by at least three additional months, as sharp relapses in Covid-19 infections in a number of key markets threaten new drags on global demand. The risk of the group failing to reach a settlement even after the second day of negotiations cannot be ruled out, although such a scenario would be costly and prove highly detrimental for oil prices that are already highly sensitive to changes in supply.
Recent signals from OPEC+ members extend uncertainties onto global oil prices, which have rallied through most of November, on the back of Covid-19 vaccine optimism and build-up in bullish sentiment over resilient economic data from the US and China. The Brent curve briefly flipped into backwardation for the first time since March at the end of November, indicating the bullish turn in sentiment, although persistent Covid-19 pressure and sluggish demand continue to paint a cloudy near-term outlook ahead of 2021,” the company said.
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