Projections from Initial reported leaks from the OPEC+ meeting today seem to align well with OPEC’s research report last week, where they expectedly painted a bleaker outlook for oil consumption trends next year.
Their forecast is still somewhat more positive than we believe the reality suggests, but is within a reasonable range of outcomes.
The reported estimates of OPEC+’s supply-demand balances for 2021 make the case for the alliance that “action should be taken” to avoid putting the market back in to stock-building mode at the start of 2021.
The alternative is a likely negative reaction in oil prices which we believe OPEC seeks to avoid.
The market now has partly priced in an avoidance of the scheduled January production increases, so although such a decision will definitely bring relief and a price uptick, the effect will be moderate.
Our own balances suggest that if OPEC+ does not amend the production cut agreement and increases output from January, we are in for a multi-month supply glut at least for the first half of 2021
High-level voices from the alliance, the loudest being Saudi Arabia today, have also made it clear that the group should not take an action that will encourage a negative market reaction and should address the situation if needed, being open to consider amending the deal.
However, and this could weight a bit on prices, the meeting has not brought forward a recommendation to amend the current deal. Traders may need to continue biting nails until the more decisive meeting in the end of the month.
Russia’s position also seemed to be aligning with the current deal but there were no hints to the group about its stance to keeping oil taps tight where they are.
Summing it up plenty of suspense remains for the coming meetings, and the lack of a recommendation forces the market to wait for the next episode of this saga before feeling comfortable again.
