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Fuel for Thought: OPEC+ to set tone for 2022 with response to US oil release, COVID-19 variant

Coordinated SPR release could prompt OPEC+ to withdraw crude output hike: sources

Highlights

OPEC+ has option to delay monthly 400,000 b/d increases

US weighing SPR release with other consuming countries

Stricter lockdowns as crude falls below $80/b also bear watching

OPEC and its allies are expected to maintain their policy of increasing crude output by 400,000 b/d next month, but if consuming countries release barrels from their strategic reserves, the producer bloc could reassess its options, some delegates told S&P Global Platts.

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The OPEC+ alliance is scheduled to meet Dec. 2 to decide on January production levels, amid hints from the US that it could coordinate a release of crude from strategic reserves with Japan, China, India and other countries, to lower oil prices that they say have endangered the global economic recovery from the pandemic.

The speculation over the crude release has contributed to Dated Brent falling below $80/b, after hitting three-year highs above $85/b in late October.

"There are no concerns at this time about the US and China releasing crude from strategic reserves because if the market were to be oversupplied, OPEC+ has the option of not increasing or reducing production," one delegate said, asking not to be named to discuss private deliberations.

His comments were echoed by International Energy Forum Secretary General Joe McMonigle, who is in frequent contact with OPEC+ ministers.

A further ratcheting of coronavirus lockdown measures in Europe may also prompt the OPEC+ alliance to delay or withhold its planned production increases, he said Nov. 22.

A drop-off in oil demand related to rising COVID-19 infections or a strategic reserve release could add to what many forecasters, including from OPEC, the International Energy Agency and the Energy Information Administration, have predicted will be an oversupply by the start of 2021.

"In light of current IEA, OPEC and EIA forecasts for a surplus in the first quarter next year, I anticipate OPEC+ energy ministers will maintain their current plan of adding more supplies to the market gradually," McMonigle said in a statement. "However, certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions."

OPEC+ countries are aiming to eliminate the historic output cuts they implemented in spring 2020 by late 2022 by hiking production by 400,000 b/d every month, though ministers have said they could alter the deal as market conditions warrant.

McMonigle said he spoke to Ono Hikariko, director general of Japan's Economic Affairs Bureau at the Ministry of Foreign Affairs about the impact that the recent surge in crude prices was having.

As the head of an organization founded to foster dialogue between oil producing and consuming countries, McMonigle said the market volatility was being caused by a sharp drop in oil industry investment.

"There are growing signs of scarcity today and the years ahead," he said. "We must keep making progress to address climate change, but I am concerned that sharp increases in utility bills and transport costs for consumers worldwide could undermine public support for climate action."

He said the IEF was closely monitoring the energy market and was planning a series of ministerial meetings "to bolster the efficiency, transparency and stability of energy markets and to address climate change and promote just and orderly transitions."