BAKU, Azerbaijan, Dec.5
By Leman Zeynalova – Trend:
Although everyone expects a much better year in 2021, the severity of the Covid-19 pandemic in many countries means there are still some bumpy months ahead for the oil market, Trend reports citing Wood Mackenzie.
The company was commenting on the recent decision of OPEC+ countries.
“Before the meeting, there were some bad omens for hopes of a constructive agreement to defend oil prices. The online meeting of ministers of the OPEC+ group, including OPEC and its allies such as Russia and Kazakhstan, had been originally scheduled for Tuesday, but was put back when it became clear that the differences between members would take more time to resolve.
Against that backdrop, Russia and Saudi Arabia, the group’s de facto leaders, had wanted to keep its production limits at their current level of 7.7 million barrels a day below the pre-pandemic baseline,” said the company.
Wood Mackenzie reminded that under the agreement the group reached in April, when the plunge in oil demand was at its worst, the curbs were scheduled to ease off to a 5.8 million b/d reduction at the start of 2021. “Some OPEC+ members, led by the United Arab Emirates, wanted to keep to that schedule. The UAE has been increasing its production capacity, and has made the steepest cuts in its output relative to its potential.”
“The problem is that the demand is not yet there for the increased OPEC+ production envisaged in April. Allowing almost 2 million b/d of additional output in January would have led to a significantly oversupplied market in the first quarter, Wood Mackenzie analysts calculated, putting strong downward pressure on prices.
Faced by that threat, the OPEC+ producers agreed to make good their differences. The compromise agreement sealed on Thursday allows only an extra 500,000 b/d on to the market in January, with subsequent increases trickled out only as demand recovers. The OPEC+ countries will hold monthly ministerial meetings, starting in January 2021, “to assess market conditions and decide on further production adjustments for the following month”. The largest possible production increase in any one month will be 500,000 b/d,” said the company.
Ann-Louise Hittle, the head of Wood Mackenzie’s Macro Oils service, commented that the compromise reflected a determination to avoid a repeat of the price war that broke out after the OPEC+ countries failed to reach an agreement on production cuts in March. “The group is clearly signaling its intent to avoid an all-out push for market share regardless of prices,” she said.
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