All eyes on OPEC meeting as group mulls easing of production restraint

OPEC held its scheduled bi-annual meeting virtually on 30 November 2020. Though the group was unable to reach an agreement at that meeting, up for discussion is whether the production restraint would be eased starting 1 January 2021. Currently OPEC+ has a target of cutting 7.7 million b/d output through the end of the year. That is due to ease to a 5.8 million b/d reduction at the start of 2021.

Speaking on the event, Wood Mackenzie vice president Ann-Louise Hittle said: “With the surge of coronavirus cases in Europe and the US, for example, the global demand recovery from the lows of spring 2020 has been slower than expected. On the supply side, Libya’s production has climbed about 700,000 b/d since September and is also a factor weighing on the market fundamentals.

“Wood Mackenzie market analysis shows the stakes are high for OPEC+ if the group does not agree to continue current levels of production restraint in Q1 2021. We would expect an oversupply of over 2 million b/d in the first quarter and that would increase in the second quarter. By contrast, a continuation of current output would lead to an oversupply of closer to just 800,000 b/d.

“Without a rollover of current production, downward pressure on oil prices would put Brent at risk to slide back towards US$40 per barrel after recent gains on news of a vaccine helped lift prices. Given these stakes, we believe the group is likely to reach a compromise to delay the increase in production for three months.”

OPEC ministers reconvene on 1 December and OPEC+ on 3 December. The 2-day delay in the OPEC+ meeting reflects the issues that remain to be settled.