BAKU, Azerbaijan, Dec.4
By Leman Zeynalova – Trend:
The current OPEC+ is a no-confidence, trying to save what they can save, deal, based on the growing internal dissent between hardliners (of the production cuts), and others looking for a new option to increase their production volumes, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and Global Head Strategy Risk at Berry Commodities told Trend.
The 12th OPEC and non-OPEC Ministerial Meeting (ONOMM) was held via videoconference, on 3 December 2020. Beginning in January 2021, OPEC+ participating countries decided to voluntary adjust production by 0.5 mb/d from 7.7 mb/d to 7.2 mb/d.
He noted that at the same time, OPEC is still struggling to get full compliance, as a long list of countries, including almost all the OPEC+ non-OPEC members, is not keeping to the agreement. “With only Saudi, UAE and some others taking the burden, the anger about the latter is growing. The fact that the UAE has been recently vocal on being unhappy, which already was done by Saudi before, is just a sign on the wall.”
Widdershoven pointed out that Abu Dhabi’s national oil ADNOC has just stated to target total production of 5 million bpd in the coming years, based on a hefty new investment spree to get this all done.
“With keeping to current production cuts, the money is not going to be able to get revenues back. More production is needed. Do also not undervalue the fact that most OPEC countries are struggling with increased government budget deficits, which need to be paid. Additional volumes of oil could lead to less deficits, but also have a negative impact on prices in general. The internal struggle is definitely heating up, going to be a possible breaking up issue for OPEC+.”
In general, the expert finds it a very weak agreement, based on a give something to everybody, keep official the ranks together, but the market is still very fragile, optimism on prices and demand are too optimistic or even exaggerated.
“Short term volatility will increase, prices will be under pressure, especially if there is a delay in economic growth (OECD) and implementation of vaccines. At same time, demand is still weak, and looks to be weaker if financial support programs to keep economies afloat are ending. OECD unemployment could be increasing very harshly, pushing back demand by millions of barrels. OPEC+ is also showing at present that its market regulating power is very weak at present. Additional production or even an oil glut could be hitting the market soon.”
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