BAKU, Azerbaijan, Dec.2
By Leman Zeynalova – Trend:
Phase 3 of OPEC+ could lead to immediate fall in oil prices, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.
“On 12 April 2020 23 oil-producing countries constituting what is called OPEC+ (13 OPEC countries and 10 non-OPEC countries) decided a massive cut in their global oil production from 1 May 2020 to 30 April 2022 in order to rebalance the world oil market and to push oil prices upwards (three countries, Iran, Libya and Venezuela, are exempted from these output cuts). This agreement largely contributed to the rise in oil prices which had fallen at very low levels in April.
“The OPEC+ agreement provided for three different levels of production cuts: 9.7 million barrels per day in May-June 2020 (this first phase was later extended to cover July as well), 7.7 million b/d during the second half of this year and 5.8 million b/d from 1 January 2021. But due to the Covid-19 pandemic and new lockdowns or curfews or other restrictive measures in several countries since the beginning of the autumn it would not be very wise for producing countries to start Phase 3 of their agreement on 1 January as decided previously. To go from Phase 2 from Phase 3 would in fact supply to world markets additional volumes of oil of at least 1.9 million b/d. The main risk would be an immediate fall in oil prices, which is obviously not in the interest of oil producing and exporting countries.
“Some of the OPEC+ countries, such as the United Arab Emirates, Russia or Kazakhstan, would like to be able to increase their production as soon as the beginning of next year but it is more likely that an agreement will be reached at the OPEC+ summit. Various options being considered are: a delay of about three months before going to Phase 3; a delay of about six months; a smaller increase of production from January 2021 than that provided for by the April 2020 agreement; or a slight increase of production in January followed by other moderate rises over the following three months.
“Oil prices rose in the recent period with North Sea Brent reaching $48-49/b before falling to about $47/b. In order to consolidate this situation, which is much better for producers than during the second half of this year (the price of Brent averaged $18/b only in April), Phase 3 must be delayed. At the same time OPEC+ countries which did not fully respect their production cuts commitments must be held accountable. This is the delicate equation that OPEC+ Oil and Energy Ministers will face when they will meet again tomorrow in order to reach an agreement,” said the expert.
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