Opec Talks End Without Deal
The first round of Opec talks on November 30 ended without an agreement on delaying a planned easing of production cuts at the start of 2021, thrusting the oil market into greater uncertainty.
Under their historic deal in April, Saudi Arabia, Russia and other members of the wider Opec+group are currently keeping 7.7mn barrels/day of oil supply offline, but that is due to be eased to 5.8mn b/d at the start of 2021. The second wave of the coronavirus pandemic has caused the market's recovery to stall, prompting Opec+ members to reconsider their plans.
Algerian energy minister Abdelmadjid Attar told local state press on November 30 that Opec had reached a consensus on delaying the tapering of cuts by three months from January. But other members are yet to confirm this and there are no signs that the wider Opec+ group are closing in on an agreement.
"Most traders thought that Opec's production boost postponement was a done deal which was just due to be announced now. The reality is far from that," Rystad Energy's head of oil markets Bjornar Tonhaugen commented in a note on November 30.
Some members appear to oppose the move, and the group's unity has been undermined by some producers such as Iraq failing to stick to their production quotas.
Brent futures were down 1.2% on November 30 at $47.59/barrel, while West Texas Intermediate (WTI) was 1% lower at $45/b. Neither benchmark has seen much change since then.
Opec ministers will reconvene on December 1, while the Opec+ ministerial meeting has been pushed back to December 3. Should the group fail to agree a delay, Wood Mackenzie estimates that the oil market will be struggling with a 2mn b/d oversupply in the first quarter that would increase in the second. If current cuts remain in place, however, the oversupply would only be 800,000 b/d.
"Without a rollover of current production, downward pressure on oil prices would put Brent at risk to slide back towards $40/b after recent gains on news of a vaccine helped lift prices," WoodMac vice president Ann-Louise Hittle said. "Given these stakes, we believe the group is likely to reach a compromise to delay the increase in production for three months."