Despite concerns on oversupply for Q1 2021, the group agreed to increase output by 500,000 b/d in January. Production restraint is set at minus 7.2 mmbbl per day instead of the Q4 2020 level of minus 7.7 mmbbl per day
Wood Mackenzie vice-president Ann-Louise Hittle said, “After the initial OPEC session on 30 November, without its non-OPEC partners, signs of discord pointed to doom for the concept of a simple rollover of current levels of production restraint of 7.7 mmbbl per day. Under the April OPEC+ agreement, that restraint was due to ease to a 5.8 mmbbl per day cut on 1 January 2021.
“During November, the idea of delaying that easing in production restraint took hold. This reflected widespread concerns that weaker-than-expected global demand would lead to a large oversupply in the first quarter, unless OPEC+ held back from the nearly two mmbbl per day planned increase.”
The OPEC+ Joint Ministerial Monitoring Committee (JMMC) will meet in January to consider if the 500,000 b/d cut in restraint should be continued for February, or possibly doubled.
Hittle added, “This week’s compromise reflects a determination to avoid a repeat of the price war in March and April this year.
“The compromise agreement, if continued through February and March by adding 0.5 mmbbl per day to each of these months on top of the previous month’s increase, leads to an oversupply of 1.6 mmbbl per day for Q1 2021.
“We expect Brent to hold a floor near US$40 per barrel in January and average at least US$45 per barrel for the month with this agreement.”
As expected, given the stakes the group was able to cobble together a compromise. However, now it faces the tricky task of reconsidering production at meetings each month during Q1 2021 and avoiding similar disagreements over compliance and production.
