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OPEC+ Meeting Concludes Without Policy Recommendations

Courtesy of ZeroHedge View original post here.

Update: Contrary to expectations for a formal recommendation, the JMMC concluded moments ago without a recommendation made to what policy will look like in 2021 according to energyintel’s Amena Bakr, who notes that the statement does not include any details on future policy, just a call for members to be vigilant.

The reason: according to the Saudi oil minister, the “market is too fluid to make a decision on cuts now.”

Still, a cut is all but inevitable: per the OPEC+ JTC panel which concluded yesterday, most countries support a 3-month extension of current cuts, according to sources. However, as a reminder, the JMMC can only make policy recommendations and cannot implement policy changes themselves – with attention on the end-of-month OPEC/OPEC+ gatherings for any such alteration which would require unanimous consent to be passed.

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While the OPEC+ oil producer group is due to raise output by 2 million barrels per day in January, or about 2% of global consumption, as part of an earlier agreement to steadily ease record supply cuts that were implemented this year this looks increasingly unlikely: weakening demand has prompted OPEC+, which includes the OPEC cartel,  Russia and other producers, to consider delaying the increase.

According to a confidential documents seen by Reuters, OPEC and its allies see oil inventories declining further in 2021 should producers extend supply curbs for three months or more, supporting the case for a tighter policy on crude output next year.

The report written by the Joint Technical Committee panel within OPEC+ said the rebound in global oil demand next year would be less than previously thought as the coronavirus second wave continues.

“For 2021, oil demand is expected to grow by 6.2 million barrels per day, year on year, representing a downward revision of 0.3 million barrels per day compared to last month’s assessment,” the report said.

The level of oil inventories in industrialized countries relative to their five-year average is a key benchmark for OPEC+: here stocks have soared in 2020 as demand collapsed due to the pandemic.

According to one scenario in the report, if oil cuts were extended to the end of March 2021, OECD commercial inventories will decline to stand at 73 million barrels above the five-year average in 2021. If the reduction pact was extended to the end of June, OECD stocks would fall and stand only 21 million barrels above the five-year average next year, according to another scenario.

OPEC+ sources told Reuters on Monday that one option gaining support was to keep existing curbs of 7.7 million bpd for a further three to six months, rather than tapering the cut to 5.7 million bpd in January.

The JTC report also outlined a third set of circumstances in which oil demand is assumed to be weaker, in which OECD stocks would rise to stand 470 million barrels above the five-year average by the end of 2021. It called this the “alternative” scenario; it was not clear how OPEC+ would address such a dramatic increase in oil stocks.

While OECD oil stocks declined modestly in September 2020, they still stood 212 million barrels above the five-year average, according to the latest public OPEC docs.

Under the report’s base case scenario, OECD stocks would drop and remain 125 million barrels above the five-year average at the end of 2021, still a sizeable decline from September’s level.

The JTC met virtually on Monday before another panel, the Joint Ministerial Monitoring Committee (JMMC), is set to meet on Tuesday. The meeting of the JMMC, which can recommend policy steps to OPEC+, is scheduled to start at 1300 and is expected to announce a delay in production increases. Reuters notes that the JTC is considering both extensions to existing cuts of three and six months, according to the report.


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