OIL : OPEC Meeting

(Fri, 27 Nov 2020). OPEC+ meeting is scheduled to take place Nov 30-Dec 1, where market consensus is for a rollover of production quotas thus delaying the initially scheduled 2mbpd production hike and maintain production cuts of 7.7mbpd. While the proposals are between a 3 or 6-month delay, given the recent vaccine optimism, which has seen oil prices among the key beneficiaries with Brent crude futures at $48/bbl, rising 28% this month, the most likely outcome is that OPEC+ will opt for a 3-month delay. However, it is also worth mentioning that in light of oil prices surging the risk of no agreement has crept up.

Both the JMMC and OPEC Economic Commission Board noted that oil inventories would rise if there was no delay in easing oil cuts, Under a 3-month delay the Economic Commission Board highlighted that oil inventories would drop by 1.7mbpd in Q1 21, and fall by 3.2mbpd in Q2 21 under a 6-month delay. In recent weeks, traders have been anticipating a tight oil market yet again with Brent crude 6-month calendar spreads tightening to a $0.20 contango.

On November 28th, informal consultations are being led by the Russian and Saudi Energy Ministers to gain support over the proposed plan to extend current production cuts, in what will largely be seen as a precursor to the actual OPEC+ meeting. The main focus will likely be on getting both the UAE and Iraq on board, given that they have signalled doubts over the future of the OPEC production cut agreement, particularly with the latter where non-compliance has been an issue. One thing to keep in mind is that these meetings tend to be about managing expectations ahead of the main risk event (OPEC+ meeting).

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