MOSCOW (MRC) -- With the oil market's recovery from the coronavirus pandemic slower than hoped, some OPEC+ members are acknowledging that the alliance's production cuts may need to be extended, rather than eased as planned, at the end of the year, reported S&P Global.
A key OPEC+ monitoring committee is scheduled to meet Oct. 19. While delegates say they expect no decisions on the cuts to be made at the meeting, as the committee is only advisory, some say the bearish market outlooks can not be ignored.
"There is no recommendation, as of now" for any changes to the OPEC+ production cut accord, one delegate told S&P Global Platts on condition of anonymity. "But the trend of the (market) says to extend the cut."
The OPEC+ alliance is in the midst of a 7.7 million b/d production cut accord that is set to ease to 5.8 million b/d from January.
Many countries are reimposing travel restrictions and lockdown measures as COVID-19 cases rise again, which could depress oil demand. Libya's return to the market after a ceasefire between rival groups, where production could surge to 700,000 b/d by December from 300,000 b/d, according to the International Energy Agency, is also pressuring oil prices.
"We are on the course to recovery, but we have to be realistic that this recovery is not picking up pace at a rate that we earlier expected in the year," OPEC Secretary General Mohammed Barkindo said Oct. 15 at the Energy Intelligence Forum. "Therefore, demand itself is still looking anemic."
Any change to the OPEC+ deal would need to be ratified unanimously by the 23-country coalition, whose next meeting is Nov. 30-Dec. 1.
Obtaining such approval could be politically tricky. Many members are already chafing at their production quotas and eager to pump more, as patience wears thin with oil prices mired in the low USD40s/b.
"The trend of the last three months is one of disappointment (for OPEC+), which brings into play, does it need another tweak or a postponement of those production increases?" Paul Horsnell, Standard Charter's global head of commodities, said at the Platts Middle East Executive Petroleum Conference on Oct. 12. "It's a difficult decision, to get back to the table and start arguing again. At this stage, it's too difficult to call."
Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin held close consultations on the market on Oct. 14, stressing their support for the OPEC+ deal. As the two largest members of the OPEC+ coalition, Saudi and Russian officials often coordinate their positions ahead of key meetings, including the monthly monitoring committee sessions.
"Saudi and Russia are always in constant discussion on the market conditions," a source familiar with Saudi policy said, adding that a decision on the cuts would be based on how countries are implementing pandemic containment measures, whether global oil stocks are increasing or decreasing, and how customer orders for crude are shaping up for the months ahead.
"(OPEC+ members) see the orders come to them more than anybody else, so they know exactly if there's demand," the source said, asking not to be named.
Asked about what the OPEC+ alliance may decide in the months ahead, Barkindo only said: "A lot of variables may be reintroduced, but we will focus on how to best assist this market to accelerate the recovery to restore the stability, and also to sustain the stability...Whatever decision that will be taken is to ensure that the recovery in 2021 will be at a favorable pace, will gather momentum in this Q4 and will accelerate."
The sober mood was underscored by a delegate-level technical committee meeting earlier Oct. 15, where OPEC analysts said that "risks to the world economy and oil demand growth are skewed to the downside," according to a presentation seen by Platts.
OPEC is expecting global oil demand recovery of 6 million-7 million b/d in 2021, on the back of a GDP rebound of 4.7%, Barkindo told the Energy Intelligence Forum.
The organization's analysts have pegged 2020 oil demand at 90.29 million b/d, rising to 96.84 million b/d in 2021, according to its latest monthly oil market report.
OPEC+ compliance with its quotas stood at 102% in September, up from 101% in August, the technical committee found.
But the so-called "compensation cuts" owed by 13 OPEC+ producers that previously violated their quota levels remain scant, although Barkindo said this process was moving smoothly.
"We are now focused on making sure all countries that have a backlog of volumes make these cuts by December," he said.
Under the deal, members that pumped in excess of their quotas must compensate with extra cuts of equivalent volume by the end of the year. With the compensation cuts included, OPEC+ compliance drops to 97% for September, according to OPEC+ data seen by Platts.
As MRC informed previously, global oil demand may have already peaked, according to BP's latest long-term energy outlook, as the COVID-19 pandemic kicks the world economy onto a weaker growth trajectory and accelerates the shift to cleaner fuels.
Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.
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