Opec+ postpones meeting as producers disagree on curbs for 2021

Opec+, the alliance headed by Saudi Arabia and Russia, moved its Tuesday meeting to Thursday, as producers remain on the fence about a rollover of output cuts.

On Monday, the group ended its first of two meetings on an uncertain note as countries disagreed on a production policy for the new year and volume of compensatory cuts to be made in 2021.

Oil fell for the second day following the contentious meeting. Brent, the international crude benchmark, was down 0.19 per cent at $47.79 per barrel, while West Texas Intermediate, the US oil gauge, fell 0.33 per cent to trade at $45.19 per barrel at 4.49pm UAE time.

Opec+ was initially scheduled to taper its current level of cuts at 7.7 million barrels per day to 5.8m bpd at the start of 2021. However, the rising number of Covid-19 cases and renewed lockdowns in several parts of the world have forced the group to consider extending the current volume of restrictions.

"A compromise in the form of a more gradual increase of the initially planned 2m bpd easing seems like an option, but if the reports of both Russia and Saudi Arabia being in favour of a rollover are indeed true then their preferred path still seems like the most probable outcome,” JBC Energy said in a note on Tuesday.

Opec is meanwhile preparing for the current low cycle of demand to persist into the new year.

While positive news on three Covid-19 vaccine developments proved to be a “light at the end of the tunnel”, the group remains cautious, Abdelmadjid Attar, Algeria’s energy minister and chairman of the Opec conference, told delegates in an online meeting.

Should Opec+ increase output as initially planned, oil markets will have to brace for a 200m barrel glut by May, Rystad Energy said in a report.

“The world in January will face its biggest monthly glut since April 2020 with an average daily surplus of 3.1m barrels for the month” if Opec+ fails to amend its current deal, the consultancy said.

Markets will see a gradual build-up of smaller surpluses that will continue to balloon through to May before reaching the 200m barrel mark and will eventually shrink from June, Rystad Energy added.

Opec+ agreed to cut output earlier this year as supply outpaced demand in oil markets and economies remained depressed due to the pandemic-induced lockdowns.

The industry went through its worst month in April, when demand collapsed to record lows and WTI traded at sub-zero levels, trading briefly at minus $40 due to storage capacity constraints.

“We believe keeping the current agreement in place – which calls for raising target production by 1.9m bpd from January 2021 – could send Brent back down to $40 per barrel or lower,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.

"A three-month extension would only provide marginal support to prices, but would help to establish $50 as a sturdier floor, while a six-month extension could help to meaningfully deplete the storage overhang and supercharge prices into the mid-$50s,” he added.