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OPEC+ Ready to Act If Needed Amid Talks on Output-Hike Delay

OPEC+ Voices Caution on Oil Market as It Mulls Output-Hike Delay

A panel of OPEC+ ministers told the group to be vigilant and responsive to the needs of the oil market, after discussions about whether their planned January production increase should be delayed.

The committee that monitors the market stopped short of giving a firm recommendation on whether the supply hike should proceed as scheduled. Ministers had been discussing a delay of three to six months. A final decision will be made at a full ministerial meeting on Nov. 30 to Dec. 1.

“All participating countries need to be vigilant, proactive and be prepared to act, when necessary, to the requirements of the market,” the panel said in its closing statement after Tuesday’s video conference.

After a week in which crude prices rallied on news of Covid-19 vaccine breakthroughs, ministers sounded both optimistic and cautious notes about the strength of global demand.

Saudi Energy Minister Prince Abdulaziz bin Salman said he could see a light at the end of the tunnel, but the market had some way to go before getting there. His counterparts from Algeria and Russia talked about bumps in the road and an uncertain winter, adding to the impression that the group is open to considering a delay.

“There is still a way to go before we reach the other side of the long-awaited pandemic tunnel,” Prince Abdulaziz said at the opening session of the OPEC+ Joint Ministerial Monitoring Committee’s virtual meeting. “The good news was counterbalanced by a surge in cases in the second wave of infections” and a rush of additional supply from Libya.

Short-Term Weakness

The producer group, led by Russia and Saudi Arabia, has been dropping hints for weeks that its plan to add almost 2 million barrels a day to oil markets next year may not be such a good idea as demand remains depressed.

Since President Vladimir Putin first said last month he was open to a delay, the short-term outlook has worsened even as vaccines offer hope for the longer term. Some of Europe’s largest economies have gone back into lockdown to curb the spread of the virus, while the U.S. has been seeing record numbers of daily cases.

While crude prices rallied to $45 a barrel in London last week following news of the vaccine breakthrough, they remain far lower than most OPEC nations need to cover government spending. There’s also a risk that oil demand will remain depressed for many months during the slow rollout of vaccines.

“The world has a better understanding of how to fight the pandemic, new restrictions have a milder effect on demand and we see significant progress in development of vaccines,” said Russian Deputy Prime Minister Alexander Novak. “We need to continue showing commitment to our obligations, taking into account today’s uncertainties and the market situation amid winter demand.”

Tuesday’s committee meeting was briefer and less conclusive than some OPEC+ delegates anticipated, and included a note of discord.

For the second time in just over a week, United Arab Emirates Energy Minister Suhail Al-Mazrouei expressed reservations about extending the supply curbs at their current level of 7.7 million barrels a day. He said there shouldn’t be any decision until all nations have fully implemented their agreed cuts, according to delegates.

The UAE bridled at its OPEC obligations in the summer, flouting its mandated target, though it has since brought output back in line. Others such as Iraq and Nigeria still owe substantial “compensation cuts” for their overproduction in previous months.

Fluid Situation

If the planned production hike goes ahead and consumption is weaker than expected, global oil supply could exceed demand next year by an average of 1.9 million barrels a day, according to the conclusions of an OPEC+ technical committee that met on Monday. However, its base-case projection is that consumption will be higher than supply in 2021, depleting world stockpiles at a rate of 400,000 barrels a day.

If the group defers the increase until after the first quarter of 2021, the committee concluded that global inventories would decline by 900,000 barrels a day on average next year, delegates said, asking not to be named because the meeting was private. Postponing that boost until the second half of 2021 would cause an average drawdown of 1.4 million barrels a day, they said.

“We are in a situation now where things change overnight,” Prince Abdulaziz said in an interview with Asharq TV after the JMMC meeting. “The situation is fluid and so taking a position now is professionally not right.”

©2020 Bloomberg L.P.