Half-Yearly Financial ReportFor the six months ended 31 October 2020

Bloomberg

OPEC Seeks Compromise on Plan to Delay Output Hike

(Bloomberg) — OPEC ministers started hashing out the size of the cartel’s oil-production cuts for next year, as the group’s president called for caution in a fragile market.The coalition is debating whether to maintain supply at current levels or increase it as planned in January. Some members are concerned that global markets remain too weak to absorb more barrels while others want to sell more crude as prices surge amid hopes for virus vaccines.Market-watchers have been expecting OPEC+ to agree on a three-month delay — and if the group doesn’t deliver prices will suffer. At stake also is the credibility of the cartel whose actions have underpinned the market since the spectacular oil crash earlier this year. The runup to the meeting has been marked by new cracks emerging in the coalition. A couple of hours into the call on Monday, a delay of three months was proposed, according to delegates, and so far there’s been no opposition. But delegates said it was likely a final decision wouldn’t be reached until Tuesday.“We must be aware today that the market conditions of 2020 are likely to continue during the first quarter of 2021,” Algerian Energy Minister Abdelmadjid Attar, who holds OPEC’s rotating presidency, said at the start of talks. “We must be cautious.”Indicating a preference for a delay, he was then quoted by Algeria’s state news agency saying there was consensus, and he was optimistic there would be an agreement on a first-quarter extension.Other options that have been floated are a two-month delay, and the possibility of gradually increasing output over a three or four month period.Tense SundayProducers held informal discussions on Sunday evening, where most of them had supported maintaining the existing curbs into the first quarter. But the plan didn’t get backing from two of the coalition’s major players: the United Arab Emirates and Kazakhstan, delegates said.Tensions have emerged between the UAE and the Saudis, traditionally stalwart partners. Abu Dhabi has grown impatient to use its new production capacity, while also planning to launch a regional oil benchmark contract. The country hasn’t commented publicly on its stance, and officials said before Monday’s meeting that they hadn’t decided on a position.Kazakhstan is ready to discuss its position, according to a person familiar with the country’s oil policy. The Kazakh Energy Ministry declined to comment.Several delegates predicted that OPEC+ would eventually find a compromise that works for everyone, as is usually the case for the group.“There is still a broad desire within OPEC+ to balance the market,” said Bill Farren-Price, a director at research firm Enverus. “While there are options on the table, there is no oven-ready deal.”If that consensus can’t be achieved, the existing agreement allows members to add 1.9 million barrels a day to world markets, potentially derailing the recent rebound in crude prices. Brent futures are trading near $47 a barrel in London. Crude could fall by about $5 if OPEC+ doesn’t delay the production increase, according to Goldman Sachs Group Inc.Uncertain DemandOPEC+ made vast production cuts during the depths of the pandemic to offset a historic collapse in fuel demand. The alliance had planned to ease some of those curbs at the start of 2021, in anticipation of a global economic recovery. Over the past few weeks, leading figures in the alliance such as Saudi Energy Minister Prince Abdulaziz Bin Salman and Russian Deputy Prime Minister Alexander Novak have signaled support for delaying that supply increase.While a breakthrough in vaccines to tackle the coronavirus propelled oil prices to an eight-month high, a resurgence in infections has triggered a new wave of lockdowns and inflicted a fresh blow to fuel consumption. The cartel and the wider industry have downgraded their outlooks for 2021, with a picture thats sharply polarized between recovery in Asia and stagnation in Europe.Grumbling MembersYet Abu Dhabi has so far withheld its blessing for a delay, with Energy Minister Suhail Al-Mazrouei repeating his position that many countries still haven’t implemented the supply cuts they’ve been obligated to make for months, delegates said.That may have been a pointed reference to the Saudis’ treatment of the UAE during the summer, when Mazrouei was summoned to Riyadh and given a public rebuke for his own overproduction. The country has since delivered the required compensatory curbs, but other laggards like Iraq and Nigeria haven’t.The Emirates’ frustration flared two weeks ago, when officials signaled privately that they were dissatisfied with the quota assigned to them by OPEC, and were even contemplating leaving the organization in the long term. Iraq and Nigeria have also grumbled about their output limits.“It won’t be an easy meeting,” Iranian Oil Minister Bijan Namdar Zanganeh told the Shana news agency. “Some are opposed to extending the previous decision, and this makes matters more difficult.”(adds latest from meeting)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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