OPEC retains oil cuts over demand concerns
Members of the Organisation of the Petroleum Exporting Countries (OPEC) and allied producers under OPEC+, yesterday, agreed to cap crude production at current levels in February. The decision was taken at the Joint Ministerial Monitoring Committee (JMMC) meeting.
In December, the partners agreed to raise collective output quotas by 482,000 b/d for January from the 7.68 million b/d that was based largely on October 2018 baselines.
Having agreed to raise quotas by 500,000 b/d for January – a compromise between members, despite uncertainty about pandemic recovery, the cartel decided to maintain the conservative quotas next month over demand concerns.
The market, however, reacted to the news as Brent Crude dropped from the $52.43 it recorded earlier in the day to $51.12 as at 5:57 pm WAT while Nigeria’s Bonny light slipped by 0.45 per cent to $50.59 per barrel.
The 13 members of the OPEC cartel, led by Saudi Arabia, and their six allies led by Russia, had agreed to meet at the beginning of each month to decide on any adjustments to production volumes for the following month.
Preparatory to the 13th OPEC-non OPEC Ministerial Meeting, Mohammad Sanusi Barkindo, OPEC Secretary-General had, during the 47th Meeting of the Joint Technical Committee Videoconferencing on Sunday, stated that inventory levels remain stubbornly high as the current levels are more than 205 million barrels higher than the same time one year ago and about 163 million barrels above the latest five-year average.
OPEC+ cartel has been cutting production to balance supply and demand, the importance of which was highlighted during the coronavirus pandemic when oil demand plummeted.
The initial cut of 9.7 million barrels per day (bpd) has already been eased to 7.7 million bpd, and the group is planning a gradual rise of 2 million bpd this year, with 0.5 million bpd increase starting in January.
Amid the hopeful signs, Barkindo said the outlook for the first half of 2021 is very mixed and there are still many downside risks to juggle.
According to him, the cartels can only speculate on how the social and working habits developed out of necessity last year will ultimately affect important areas such as mobility over the longer term.
Furthermore, he added that the new strain of the virus is a harsh reminder of how delicate the situation remains after a year of human loss, economic shock, and historic oil market destruction.
Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman, yesterday, said that there is “no room for complacency” for the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) when it comes to possible relaxation of oil output reduction.
The economic uncertainty caused by the coronavirus pandemic is still high, he warned during his remarks at the 13th OPEC-non OPEC Ministerial Meeting, adding that oil demand is “well short” of levels it reached at the same time last year. The new coronavirus strain is a “worrying development,” as well as the “new wave of lockdowns” that would “impact the rate of recovery” of the global economy.
“Do not put at risk all we achieved” for an “illusionary benefit,” he reminded his OPEC and OPEC+ counterparts.Russian Deputy Prime Minister, Alexander Novak expressed hope that the oil market will manage to completely recover from the coronavirus shock in 2021 and return to normal conditions “as soon as possible.”
Speaking at the Ministerial meeting, Novak noted that a “significant recovery” in oil demand is possible as vaccination against the virus has started in many countries and is “accelerating” and the COVID-19 pandemic could be approaching.
The Russian official praised efforts by OPEC and its allies to balance the market amid the pandemic, pointing out their “constructive and timely” decision on further output cuts helped “minimize the consequences of the huge decline in demand” which was caused by lockdowns around the globe.
Despite the rollout of several coronavirus vaccines, uncertainty still looms over oil prices as lockdowns are likely to be extended in several countries. Germany appears set to extend lockdown measures until January 31, while Japan is considering another state of emergency for the Tokyo area.