The Organization of Petroleum Exporting Countries (OPEC) made progress toward the signing up of a deal that will properly control and direct the production of oil in 2021.
The initial official meeting was postponed until Thursday, the 3rd of December, after which it became clear and precise that more dialogue would be necessary before a complete agreement could be reached.
Looking ahead with the future in place, the meeting suggested that it was important that the Declaration of Cooperation (DoC) members and all primary producers, will remain completely committed to efforts, geared at stabilizing the market.
Due to the more constricted COVID-19 containment protocol, this measure continues to wiggle the balance levels centered around the global economy and oil demand, with predictable uncertainties that may occur over the course of winter.
The Market change
Due to the stringent condition of global lockdown, the price of the Global benchmark, Brent crude, rose beyond 44 cents or 1.0%, to settle at a price of $48.71 a barrel, while after a one-week closing high of $45.64, the U.S. West Texas Intermediate (WTI) crude topped up by 36 cents or 0.8%.
That was estimated to be the highest settlement for Brent since March 5 – before the lockdown restriction imposed on countries to impede the spread of coronavirus. Most major oil producers agreed to increase their output by a factor of 500,000 barrels per day (BPD) from the inception of January.
OPEC+has an agenda of cutting down production by 7.2 million BPD or 7% of the present global demand which began in January, compared with the current shorting of 7.7 million BPD.
OPEC+ extended the existing cuts until the month of March, after the downtime experienced from earlier plans to progressively grow output by 2 million BPD.
During the meeting, Russian Deputy Prime Minister, Alexander Novak, remarked that the group would now gather and top up their production scale every month, hence determining and extending the output policies beyond the month of January, with a varying production demand exceeding 500,000 BPD.
The market has reacted positively to the meetings organized by OPEC+, and prices have become volatile in movement. As the meetings and consultations kept dragging, OPEC+ delegates notified that the seeming “majority” are willing to extend the group’s current sum collective reduction of 7.68mn BPD for over three months.
Albeit, these countries; UAE, Russia, and Kazakhstan, have been the primary voices of opposition and due to the turbulent compliance levels from encompassing countries such as Iraq, Nigeria, and Russia, there appeared to be a bottleneck in negotiations.
Source: SP Global Platt
The countries not complying just like Nigeria, have been met with limited consequence. Most countries have had different experiences to the oil shocks in the last three quarters. This is what shapes their agenda for production quotas.
Nigeria needs to produce more as the country heavily depends on oil proceeds. Countries that have signed the deal, involving both Russia and the UAE may be additionally incentivized as opposed to continual production cuts, considering the fear of losing in the Asia-Pacific market.
For market balance to exist, the internal unhappiness must reach a tipping point upon which a breaking point may occur.
Earlier this week, Saudi Arabia showed a feasible result in return, having floated, the possibility of stepping down from its responsibility as co-Chairperson of the JMMC group, and this practically monitors their compliance to the overall goal. It is still unclear to determine whether the pitch began as a bargaining strategy or if the Saudis’ intended to give up some of the leadership roles.
In addition, DoC participating counties were tasked to hold OPEC and non-OPEC Ministerial meetings every month beginning from January 2021.
These meetings are needed to evaluate the market conditions and make decisions on more production adjustments for the upcoming month, with more monthly adjustments to be 0.5 mb/d and should not exceed the agreed value.
During the meeting, both the OPEC and non-OPEC participating countries appealed to Saudi Arabia’s Minister of Energy, HRH Prince Abdul Aziz bin Salman, advising him to continue in his role as Chairperson of the OPEC and non-OPEC and as such, they also agreed to extend the compensation period established from the 11th ONOMM, and later changed in September 2020, for the period of January until the end of March 2021.
This is to ensure full compensation of overproduction from all DoC participating countries.
However, the HRH Prince Abdul Aziz bin Salman chose to accept the offer to continue in his role as Chairman of the meeting and vowed to excellently pursue the total sustainable oil market stability desired and demanded by both producers and consumers.
Does the market need these cuts?
This present reconsideration came to the fore during the worsening Covid-19 outlook in most regions, and this is coupled with the improvement of Libyan production since September.
This change of heart accompanies a major shift, and resulted in a major difference in the number of participating countries that deeply felt the strain and pressures under the agreement, though recent positive developments focused on Covid-19 vaccines and the subsequent upward change in oil prices have altered the market outlook.
Before the meeting, Algerian primary Oil Minister and present OPEC President, Abdelmadjid Attar, gave a prediction – more like a caution ahead of the just completed OPEC Ministerial meeting. He told every member during the meeting that the weak oil demand will possibly continue down to the first quarter of 2021.
The Meeting proved extensively that the future holds great reward for the oil-producing countries, since the new competition is a collaboration and as such, each participatory member expressed their deep appreciation and gratitude to Alexander Novak, Deputy Prime Minister of the Russian Federation, for his great exemplary leadership as co-Chairperson of the ONOMM ever since his resumed that position.
Finally, a subsequent meeting was scheduled to be great, and as such, they noted ahead of the fourth anniversary signing of the DoC, which was enacted on 10th December 2016. Each of these countries voluntarily decided to continue in their commitment to the foundational principles which underpins the DoC.