London — OPEC and its allies will keep the oil market guessing for a few weeks on whether they will maintain their deep production cuts into 2021, as traders largely expect and ministers themselves have hinted.
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A key monitoring committee led by Saudi Arabia and Russia met Nov. 17 without making any policy recommendations, delegates told S&P Global Platts, despite reviewing proposals to postpone the OPEC+ alliance's scheduled 2 million b/d easing of quotas by three or six months.
The 22-country producer bloc will announce its decision when it convenes online Nov. 30-Dec. 1, still ample time for market fundamentals to shift, delegates said, warranting a cautious approach to publicizing any outcome beforehand.
Analysts and traders have said that if the quotas are scaled back, the fragile oil market would likely not be able to absorb the additional supplies -- along with Libya's resurgent crude production -- without tanking prices, particularly with the first quarter traditionally a low-demand season. Front-month Brent prices have rallied over the past week but remain under $44/b, far below what OPEC+ members view as ideal.
"All participating countries need to be vigilant, proactive and be prepared to act, when necessary, to the requirements of the market," the Joint Ministerial Monitoring Committee said in a post-meeting communique.
The JMMC, tasked with assessing market conditions and tracking member compliance, will meet again Dec. 17 to review any new deal, as well as maintain pressure on countries to stick to their agreed production levels.
OPEC+ ministers have been cheered by recent news of advances in developing a COVID-19 vaccine, as well as signs of a robust economic recovery in China and India.
But this has been counterbalanced by a surge in infections that has prompted many Western economies to reimplement lockdown measures, as well as the rapid recovery of war-torn Libya's oil industry. Libya, along with sanctions-hobbled Iran and Venezuela, is exempt from a quota under the OPEC+ agreement.
The current deal calls for OPEC+ members to cut 7.7 million b/d of crude production from November 2018 levels, tapering down to 5.8 million b/d from January 2021 to April 2022.
REVIEWING MARKET SCENARIOS
A report prepared by OPEC's analysts for the JMMC forecast that if the cuts are rolled back as scheduled and Libya, Iran and Venezuela hold their production relatively steady, global oil inventories would draw by about 400,000 b/d, leaving OECD oil stocks 125 million barrels above the five-year average by the end of 2021.
Extending the cuts by one quarter would increase the stock draw to about 900,000 b/d in 2021, with OECD inventories ending 73 million barrels above the five-year average.
A half-year extension would induce a 1.4 million b/d draw and put OECD stocks 21 million barrels above the five-year average, according to the analysis.
In his opening remarks to the JMMC, Saudi energy minister Prince Abdulaziz bin Salman vowed that the alliance would remain responsive to changing fundamentals, warning his OPEC+ counterparts that the oil market could punish prices if they do not remain disciplined about how much they produce.
"There is still a ways to go before we reach the other side of the long pandemic tunnel," the prince said. "We as a group do not want to give the market any excuse to react negatively... This is why we must be prepared to act according to the requirements of the market."
The JMMC praised the high overall compliance levels achieved by members to their quotas, pegging it at 101% for October and 99.5% since May, but said previous overproduction needs to be made up through "compensation cuts" under the terms of the deal.
So far, only the UAE and Angola have made significant progress among the 11 members that owe compensation, the committee noted. It tallied 768,000 b/d of catch-up cuts that had been made but did not specify how much excess production still needs to be accounted for, nor which countries were responsible.
OPEC+ VS. TRADERS
"I urge all participants of the Declaration of Cooperation to renew their determination to abide by the terms of the agreement that have greatly contributed to the balancing of global markets," Prince Abdulaziz said.
Even so, he criticized the market for any cynicism about OPEC+ efforts and resolve. Having previously warned short-sellers to "make his day," the prince said he would prefer the market focus on the alliance's achieved cuts, which he said had removed 1.6 billion barrels since May.
"We have achieved 99.5% of what we set out to do," he said. "While the glass is 99.5% full, some would rather fixate on the 0.5%, on the droplets of water at the very rim of the glass. We must maintain high compliance while retaining the flexibility and nimbleness to adjust our commitment in changing market conditions."
Russian energy minister Alexander Novak, who was recently promoted to deputy prime minister but will remain his country's top liaison to OPEC+, said the coalition was still grappling with major uncertainties in the oil market.
"We have to track not just the current situation and the current state of the market but the deeper transformational trends in the sector and how COVID will be affecting them after the pandemic is over," he said in his opening remarks, pointing to the aviation industry as one that could be permanently impaired.
Russia remained committed to working with OPEC+ and would fulfill its agreements, Novak added.