Home / Oil & Energy / Oil & Companies News / OPEC+ may consider deeper oil cuts if coronavirus lockdowns squeeze global economy: sources

OPEC+ may consider deeper oil cuts if coronavirus lockdowns squeeze global economy: sources

Cloudy global economic prospects, along with a recent slide in oil prices, could prompt OPEC and its allies to ratchet back their production cuts to historic levels, sources told S&P Global Platts Nov. 3, as the market’s recovery stalls.

OPEC, Russia and other key partners in a supply accord are scheduled to taper their collective 7.8 million b/d production cuts by more than a quarter to 5.8 million b/d from January, having banked on a robust rebound in oil demand from the coronavirus pandemic in the second half of the year.

But Brent prices have dipped below $40/b in recent days and have not broken $45/b since September, frustrating many OPEC+ members that rely on crude export revenues for the bulk of their budgets.

The market conditions have largely forged a consensus within the so-called OPEC+ alliance to delay the output increase, though exact details remain very much in flux, delegates said. Ministers are set to meet Nov. 30-Dec. 1 to negotiate and announce a decision.

Algerian energy minister Abdelmadjid Attar, who holds OPEC’s rotating presidency, told his country’s parliament Nov. 3 that he was in favor of maintaining the current cuts through the first few months of 2021. The first quarter generally sees the lowest oil demand.

“Algeria is trying, with other countries, including Russia, Saudi Arabia and Iraq, to convince the other OPEC + countries to maintain the current production ceiling at the start of the next year,” Attar said.

One delegate said if prices remain weak, the OPEC+ coalition could even revert back to its quotas from May-August, when the cuts totaled 9.7 million b/d to pull the market out of its coronavirus tailspin. But he conceded this could be politically difficult to get all 23 members on board, many of whom are weary of cutting as much as they already are.

“The question is what level of cut will apply from Jan. 1 and for how long,” he said. “We could consider a deeper cut at May levels for three months.”

Another delegate agreed that the earlier cuts were a possibility, while a third cautioned that the coalition still has several weeks of economic data to consider before the meeting, which could influence its outcome.

“There is still more news to come related to demand and supply, [so] it is logical to hold our position and wait until Nov. 30,” the delegate said.

The delegates asked not to be named due to the sensitivity of the talks.
Headwinds in the market

OPEC ministers have noted in recent weeks that the return of oil demand from the coronavirus crash has been slower than they had hoped for.

OPEC Secretary General Mohammed Barkindo underscored those sentiments, saying on a Nov. 3 podcast with the International Energy Forum that the second wave of coronavirus infections “will almost certainly dampen” the oil market’s recovery, with many countries reimposing lockdown measures to contain the virus’ spread.

“The outlook for 2021 is being encumbered by the resurgence of the COVID-19 virus in major demand centers,” even as the Chinese and Indian economies are rebounding, Barkindo said.

Barkindo said the OPEC+ alliance would seek to accelerate the rebalancing of the oil market, but conceded the return of demand to prepandemic levels “will take longer than we projected.”

“In our meetings in April and June, we were hopeful for a very strong rebound in the second half of the year,” Barkindo told IEF head Joe McMonigle. “But today we continue to see headwinds.”

He said OPEC analysts estimate that global oil demand would be down 9.6 million b/d in 2020, and rebound by about 6.5 million b/d in 2021.

“But these projections are dependent on this virus,” Barkindo said. “This strong wave that we are now witnessing in both Europe and the United States will almost certainly dampen the momentum that we gathered in the third quarter.”

The IEF, based in Riyadh, seeks to facilitate dialogue between energy producers and consumers. McMonigle, a former oil market analyst for Hedgeye Capital and official at the US Energy Department, was named its secretary general on July 1.
Russia-OPEC talks

OPEC and Russia also held its annual summit on Nov. 3, with a virtual meeting between Barkindo and Russian energy minister Alexander Novak.

Novak co-chairs a key OPEC+ monitoring committee with Saudi counterpart Prince Abdulaziz bin Salman tasked with assessing market conditions and tracking member quota compliance. The committee will convene online Nov. 17, and an agreement between Russia and Saudi Arabia from the meeting will set the tone for the full OPEC+ alliance’s gathering at the end of the month.

In his opening remarks to the Russia-OPEC Energy Dialogue, Novak noted the “many uncertainties preventing the economy and global oil consumption from returning to precrisis levels.”

He called for expanding consultations between the two sides, as well as with the Gas Exporting Countries forum, to foster closer energy market analysis.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping