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S&P Global — 4 Dec, 2020

Daily Update: December 4, 2020

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By S&P Global

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Following tense delayed meetings and intense days of deliberation, the 13 members of the Organization of the Petroleum Exporting Countries and their nine allies announced on Dec. 3 their decision to gradually increase global oil production by 50,000 barrels a day in January. The group said it will revisit that amount monthly to determine what quota changes will be made.

The deal between the 22-member OPEC+ group—led by Saudi Arabia and including non-member partners like Russia that together control approximately half of the world’s crude oil output—was brokered by Kuwait, Algeria, and Azerbaijan. Their consensus signals that the worst of the pandemic’s implications for global oil demand have passed, and that the market’s recovery is flexible enough to incrementally restimulate production activity.

"Surely the market understands that we don't want to be adventurous and issue [decisions] that will happen in three months when we're not sure," Saudi Energy Minister Prince Abdulaziz bin Salman told reporters after the announcement, according to S&P Global Platts. "The market should take comfort with the idea that we have all of the tools in our kit and will release them drip by drip as we see how the market behaves. It's a sensible way of being very careful and diligent."

Sources told S&P Global Platts that formal talks became frictional and stalemated on Nov. 30, during which delegates from countries including Saudia Arabia, the United Arab Emirates, Iraq, Iran, and Russia clashed over the duration and size of the quotas. Prince bin Salman reportedly threatened to quit his position as the co-chair of a key OPEC+ monitoring committee. The discussions were then postponed to Dec. 3, and the agreement was reached.

The pathway to increased production won’t necessarily be placid, considering that the COVID-19 crisis has exacerbated the economic disparities separating emerging and advanced member nations of OPEC+’s producer alliance, analysts told S&P Global Platts. Expanding differences may create additional challenges in coming to a consensus that works for the group’s varying needs. In addition, the monthly meetings outlined in the Dec. 3 deal have the potential to increase volatility in the oil market.

"Demand recovery has lagged, and everyone has been anxious for some time to get back to pre-COVID production levels and generate more revenue," Andy Brogan, a global oil and gas leader at the consultancy Ernst & Young, told S&P Global Platts. "In times like these, no one wants to make a disproportionate sacrifice. Unfortunately, after this much pain, any sacrifice starts to seem disproportionate. Pressure to increase production will be relentless."

Ahead of the quota’s application, OPEC+ has slashed its production capacity by 7.7 million barrels per day below November 2018 levels, as prescribed by the agreement the group came to in April after tensions between Saudi Arabia and Russia triggered an oil price war that, combined with countries’ lockdowns depleting demand, ultimately sent the West Texas Intermediate benchmark price into negative territory for the first time in history.

"We're a group of responsible countries. At the end of the day people conduct themselves responsibly," the Saudi energy minister said, according to S&P Global Platts. "I hope that you refrain from continuing your imaginative Star Wars or Game of Thrones. OPEC's Game of Thrones has finished."

Today is Friday, December 4, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Economic Research: Emerging Markets: Risks To Outlook Balanced As Recovery Momentum Set To Pick Up In 2021

After a solid rebound in the third quarter, growth momentum in emerging markets (EMs) has slowed, and the near-term outlook is facing headwinds from the recent resurgence in COVID-19 cases in Europe, the U.S., as well as in several key EMs. S&P Global Ratings' baseline assumption is that the recovery will strengthen starting in mid-2021, when a safe and effective vaccine becomes widely available.

—Read the full report from S&P Global Ratings

Global Economic Outlook: Limping Into A Brighter 2021

A new surge in COVID-19 cases has led to a reimposition of lockdowns in the U.S. and Europe, halting a robust recovery. East Asia has been relatively unscathed. Activity remains uneven. – With momentum fading, we are forecasting a weaker start to 2021, with full year GDP growth at 5.0% (down 30 basis points from previously); our 2022-23 GDP forecast is broadly unchanged.

—Read the full report from S&P Global Ratings

Economic Research: Canada's Growth Slows As The Pandemic Trudges Into Winter

In line with S&P Global Ratings’ expectations, the Canadian economy entered a slower growth phase in the fourth quarter following a burst of activity in the summer. Colder weather and easing of social distancing measures have recently brought about a resurgence of the coronavirus. The relaxed social distancing measures spurred solid economic momentum in the third quarter, but such measures have started to now tighten again.

—Read the full report from S&P Global Ratings

The Future of Credit

Credit Trends: 'BBB' Pulse: Fallen Angels Should Remain Elevated As COVID-19 Cases Rise

Since April, the performance of the 'BBB' corporate population has been far better than initially expected, in part because of aggressive fiscal and monetary policies globally, as well as a stronger-than-expected economic recovery in the third quarter.

—Read the full report from S&P Global Ratings

Global Credit Outlook 2021: Back On Track?

Will 2021 be the year we bring the pandemic under control so that the world can get back on track? The COVID-19 pandemic will continue to dominate the credit story in 2021 but promising news on several vaccines has brought hope that an end is in sight. Once the pandemic is largely contained, the focus will likely turn to the gradual phasing out of extraordinary stimulus measures—and the social, economic, and credit implications of doing so.

—Read the full report from S&P Global Ratings

Global Outlook 2021: Regional Credit Conditions

Credit conditions are broadly favorable (or improving) across the globe—with some regional variation—following positive news about progress in developing a coronavirus vaccine, which augurs well for a faster recovery over the second half of 2021.

—Read the full report from S&P Global Ratings

Credit Conditions Emerging Markets: A Vaccine Won't Erase All Risks

Credit conditions in emerging markets (EMs) continue to improve following positive news about progress in developing a coronavirus vaccine, which augurs well for a faster recovery over the second half of 2021.

—Read the full report from S&P Global Ratings

Market Volatility

Vaccine Breakthroughs Lift Commodities to 6-Month High In November

Commodity futures climbed to a six-month high in November amid a series of COVID-19 vaccine breakthroughs and growing clarity on the outcome of the U.S. presidential election.

—Read the full article from S&P Global Market Intelligence

ESG in the Time of COVID-19

Producers Look to ‘Green’ Lithium as Automakers, Investors Apply ESG Pressure

As the pressure on commodity producers around environmental, social and governance issues continues to rise, the lithium sector is recognizing that playing a key role in the energy transition is not enough to escape scrutiny.

—Read the full article from S&P Global Platts

Hydrogen Finance Maturing from Day Trading to M&A

The stock price of Latham, New York-headquartered Plug Power Inc., a hydrogen fuel-cell maker that trades on the Nasdaq, has increased almost sevenfold since the beginning of the year. The company is one of a small cohort of hydrogen stocks to have soared in value in 2020, as droves of investment managers flock to bet on businesses that either produce or utilize the fuel.

—Read the full article from S&P Global Market Intelligence

Hydrogen Scale-Up Needed, but Governments Will Play A Role: IPHE Panel

Hydrogen's future role as a commodity in Europe will require a massive scaling-up of projects and technology, with governments needing to play their part in stimulating demand, panelists from industry, government and the investment community said in an IPHE panel discussion Dec. 3.

—Read the full article from S&P Global Platts

Nasdaq Seeking to Require Board Diversity on Listed Companies

Nasdaq Inc.-listed companies could soon face new rules requiring most of them to diversify their boards or risk getting kicked off the exchange.

—Read the full article from S&P Global Market Intelligence

The Future of Energy & Commodities

Infographic: A Global Oil Benchmark: Key U.S. Crude Grade Could Join Dated Brent

Dated Brent could be opening its doors to US crude as it looks to evolve as a global oil benchmark. Since crude exports from the US restarted in 2015, WTI Midland has become a mainstay for European crude imports and a core part of the North Sea crude oil market.

—Read the full article from S&P Global Platts

Factbox: S&P Global Platts Eyes Inclusion of U.S. Crude in Dated Brent Benchmark

S&P Global Platts proposed Dec. 3 including US WTI Midland crude oil in its Dated Brent price assessments, the benchmark for North Sea light sweet crude and reference point for around two-thirds of the world's oil trade. If implemented, it would be the first time the benchmark has been broadened to include a crude oil grade from beyond the North Sea, adding around 450,000 b/d of liquidity based on recent flows of WTI Midland to Europe, at a time of declining production of some of the traditional North Sea grades.

—Read the full article from S&P Global Platts

Listen: Platts Proposes WTI Midland’s Inclusion into Dated Brent

With so much US crude now coming to Europe, Platts has announced a proposal to include US WTI Midland into the North Sea benchmark of Dated Brent. Jonty Rushforth and Joel Hanley discuss how this might work and what it means for the world's leading oil benchmark.

—Listen and subscribe to Global Oil Markets, a podcast from S&P Global Platts

Written and compiled by Molly Mintz.