The OPEC+ group is getting closer to deciding how to proceed come January, according to several delegates who shared this insight with Bloomberg.
After discussing the options, which included deepening the existing production cuts, OPEC+ is now considering a three- to six-month delay to the originally scheduled ramp up that was set to begin in January.
The deeper cuts option, however, failed to gain much traction, according to one delegate.
On November 30 and December 1, OPEC+ will make its final determination in how it will proceed come January.
Currently, the group is cutting about 7.7 million bpd, and some OPEC members are ready for the nightmare that is the production cuts to be over—like the UAE and Iraq.
Libya, too, has stated that it would not join in any production cuts until its production had rebounded and stabilized at 1.7 million bpd—from its current 1 million bpd.
If Libya’s production does rebound to 1.7 million bpd in the next couple of months, it would make OPEC’s production cuts even more critical for oil prices.
While vaccine news has been promising OPEC’s MOMR failed to put much stock in a speedy oil demand recovery in 2021, and actually reduced its oil demand outlook for next year by another 300,000 barrels per day.
Even if the group decides to delay the lifting of some of the group’s oil production in January, it could change its strategy if the market gets too far out of whack.
However, the market watches all OPEC moves closely, and if they decide to add more production in at a faster pace than they decide at the end of November, it could send prices downward again—something many OPEC members cannot afford.
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By Julianne Geiger for Oilprice.com
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Furthermore, OPEC+ should not worry unduly about a return of both Iran and Libya. Despite US sanctions, Iran has managed to raise its crude oil exports to 1.5 mbd or 71% of its pre-sanction exports in October. Even with an easing of sanctions Iran couldn’t add more than additional 500,000 barrels a day (b/d). This is a drop in the ocean in a market still facing a huge glut.
As for Libya, even if its raises its production to 1 mbd, it can’t sustain it even for one month. The country’s major oilfields and oil infrastructure are badly in need of urgent maintenance some of which have been idle for years. Furthermore, the truce between the warring factions is very tenuous.
As a result, crude oil prices are expected to hit $45-$50 a barrel before the end of this year and touch $60 in early 2021. Furthermore, global oil demand will end 2020 at 96 million barrels a day (mbd), a mere 5 mbd short of 2019 level.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London