Opec+ set to decide on near-term output policy: Update

Options for the Opec+ alliance to gradually increase crude production from next year are gathering pace ahead of the group's meeting today.

Details are still being thrashed out, including a discussion over whether to start easing production cuts from January or February, one delegate said. This could mean a rollover of the group's current collective cuts of 7.68mn b/d — largely from October 2018 baselines — for a month before the gradual increase.

An inconclusive Opec ministerial meeting at the start of the week led to a two-day postponement of the wider group's assembly — scheduled to start today at 13:00 GMT — to allow for further consultation. Opec members were largely in favour of extending current quotas for three months from January, but faced opposition from the UAE, and non-Opec participants Russia and Kazakhstan.

An earlier proposal from Russia suggested easing output cuts in monthly increments of 500,000 b/d from the start of 2021. The UAE, Opec's third-largest producer, did not officially consolidate its position during this week's Opec meeting, according to delegates. It backed Russia's proposal and supported a deal rollover on condition that Opec+ members strictly conform to output quotas and compensate for any overproduction. It is unclear how this would be enforced.

The UAE's frustration emerged as early as the Joint Ministerial Monitoring Committee (JMMC) meeting on 17 November , when it said it saw little point in extending cuts beyond December if countries that have not fully met their commitments so far continue to produce above quota.

Shaky compliance levels from countries including Iraq and Russia have been met with little consequence — something the UAE said needs to be addressed, particularly given the pressure it faced to compensate for its own digressions in August. The UAE fully made up for its near 100,000 b/d overproduction in that month by producing below quota in September and October.

Russia and the UAE may be additionally incentivised to oppose continued production cuts because they fear losing Asia-Pacific market share for their respective ESPO Blend and Murban grades to US WTI crude.

The internal unhappiness appeared to reach a tipping point earlier this week, when Saudi Arabia floated the possibility of stepping down from its role as co-chair of the JMMC, which monitors compliance. It is unclear if the pitch came as a bargaining manoeuvre or if the Saudis want to give up some of the leadership responsibilities, but any such move could critically unbalance the JMMC's authority as an effective watchdog of individual countries' compliance with the output deal.

But Opec+ sources said that these rifts are not on the same scale as those seen in March, when Russia refused to deepen cuts alongside Opec because of the Covid-19 outbreak, resulting in a battle for market share and a plunge in global crude prices. Delegates are optimistic that the alliance can overcome differences to reach a consensus.

Opec+ had planned to ease production cuts by almost 2mn b/d in January. The reconsideration comes in light of a worsening Covid-19 outlook in many regions, coupled with the rapid return of Libyan production since September. A change of heart will come as a blow to the number of participating countries that have felt the strain under the agreement. Recent positive developments on Covid-19 vaccines and the subsequent rise in oil prices have further muddied the market outlook.

Algerian oil minister and Opec president Abdelmadjid Attar urged caution ahead of this week's Opec ministerial meeting. He said that weak oil demand will probably persist into the first quarter of 2021, with the effects of any vaccines unlikely to be apparent before the second half of next year.

By Rowena Edwards, Ruxandra Iordache and Nader Itayim

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