AFTER extended deliberations, debate, and heated arguments, the Organisation of Petroleum Exporting Countries (Opec) and their allies in the extended Opec+ finally opted to increase their crude output by 500,000 barrels per day (bpd) from January.
The outcome was more political than based on market realities.
Opec+ would continue to meet every month, until March 2021, to decide subsequent monthly increments, to a maximum of 500,000 bpd. The agreed output increment for January 2021 was less than the 1.9 million bpd decided in the previous meeting, but was still an increment.
In view of the existing market scenario, not all within the expanded Opec+ wanted to opt for any increment. But the impatience to raise production was palpable, among others. And a compromise was required. So the Opec+ did what was needed. However, there was a definite sense of drama during the ministerial too.
The fault lines were evident. The drama began to unfold when on Monday, after the first round of talks among the ministers, the meeting had to be delayed. It was announced the meeting would resume on Thursday instead of the earlier scheduled Tuesday.
Reportedly, the meeting was deferred, as three of the heavyweights — Russia, Saudi Arabia, and the United Arab Emirates (UAE) — held conflicting positions on the output increment issue. Minister needed more time for deliberations.
All this was interesting.
TASS quoted anonymous sources as saying that during the meeting Saudi Arabia favoured an extension of the current level of production cuts, while Russia was said to favour a gradual increase in production, beginning January. Before agreeing to roll over the cuts, the UAE insisted to ensure that all other Opec members comply with their cuts.
However, when the meeting finally began on Thursday, after a two-day delay, even then the issue was yet to be sorted out.
The session started almost two hours late and the Saudi Energy Minister Prince Abdulaziz bin Salman did not lead the session as is customary for the meeting chair. This left Russian Deputy Prime Minister Alexander Novak to lead the proceedings, delegates told Bloomberg.
The Saudi unease was apparent. And that could be the reason why Prince Abdulaziz had to be urged by the participating ministers ‘to continue in his role as Chair of the Opec and non-Opec Ministerial Meeting.’
The meeting also appreciated ‘his perseverance, diligence and extraordinary (efforts) as instrumental in helping counter the impacts of the Covid-19 pandemic and in stabilising the oil market through the successful implementation of the Declaration of Cooperation (DoC) objectives,’ the Opec statement on the meeting said.
Conceding to the request, ‘Prince Abdulaziz bin Salman vowed to vigorously pursue the sustainable oil market stability, desired by both producers and consumers.’
Saudi Arabia was reportedly more upset with the UAE. As per media reports, after leaking the story to Energy Intelligence, that the UAE was weighing its options about staying within the Opec.
Abu Dhabi and Riyadh confronted each other directly at the ministerial. Abu Dhabi wanted to pump more, underlining its quota was unfair. The UAE’s compliance with its output quota was also seen wanting over the last few months. This was unusual for Abu Dhabi and the Saudis were furious. To explain their viewpoint, the UAE Energy Minister Suhail Al-Mazrouei had to dash to Riyadh a few weeks earlier. But that did not help either.
Markets seem uninterested, at least for the time being. A gradual easing of the supply cuts is falling short of market expectations. Before the meeting, most were anticipating a full three-month delay to the 1.9 million bpd output increase, as was scheduled from January. Yet, to be fair, in the least, the deal avoided a complete breakdown of Opec+, a Bloomberg report underlined.
The deal is likely to keep the oil market in deficit throughout the first quarter, allowing Opec to help drain the bloated inventories. If the group had gone ahead with the full 1.9m bpd increase on Jan 1, the market would have flipped into surplus.
Fault lines within the Opec+ are getting more and more visible. And it may not be easy for the Saudi energy minister Prince Abdulaziz bin Salman to hold the fort for long.
The question then would be what next? Are we heading to a free for all scenario, especially since US President Donald Trump would be leaving the scene soon.
Nothing could be written off. Let us wait and see.
Published in Dawn, December 6th, 2020