BAKU, Azerbaijan, Dec.8
By Leman Zeynalova – Trend:
OPEC+ must grapple with production gains elsewhere and the gap it leaves in the market could create space for other producers, Trend reports with reference to Fitch Solutions.
“US shale output is likely to bottom in 2021, before returning to growth. In our view, growth will be tempered by prices, pressure from shareholders to maintain strict capital discipline and new regulatory burdens under a Biden administration. This, however, allows for only moderate improvements in well productivity and operational efficiency, stemming from ongoing sector consolidation and technological advancements,” reads the report released by Fitch Solutions.
The company recalled that historically, when shale producers have surprised the market, they have tended to surprise it to the upside.
“There is also the question of Iran. It is our view that, under a Biden presidency, Tehran and Washington will re-enter nuclear talks, paving the way for a rollback of sanctions and a return of around 2.0mn b/d of Iranian oil supply. Global oil inventories are high and, even with a significant deficit in the market, these will take time to run down. Overall, this points to an abundance of supply.
In this context, timing the re-entry of cut barrels to market will be crucial in avoiding any significant upsets to the oil price. If the process of monthly production adjustments proves to be successful, this may provide a means of unwinding the OPEC+ deal in full. This would likely see additional barrels returned next year, with strong demand growth and improved market sentiment providing some cover for the group. Nevertheless, the sheer size of the current cut deal will render it difficult to unwind and tensions within OPEC+ may increase, as opinions splinter over the appropriate pace and quantity of the monthly adjustments,” reads the report.
Fitch Solutions said that while the interests of the group were broadly aligned for much of 2020, their fundamental interests diverge.
“The recent meeting brought to light some of the existing frictions within the group. When the OPEC+ deal was originally agreed to in April 2020, the market was under extreme pressure. Global demand was collapsing to an unprecedented degree and all of the members of the group were under economic and fiscal strain. Their interests were, for a time, in sync. This helped to bring the deal into fruition and encouraged strong compliance in the first round of cuts. However, compliance has since slid and dissenting voices have emerged,” the report says.
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