The Organization of the Petroleum Exporting Countries (OPEC) and allies were scheduled to ease output cuts by almost 2 million barrels per day (bpd) starting from next year, however, the experts predict the group will keep the current production levels for at least three months due to the lackluster oil demand caused by the global pandemic.
OPEC and non-OPEC oil-producing nations, like Russia, a grouping dubbed OPEC+, will decide on its production cut strategy at a key two-day meeting scheduled for Nov. 30 and Dec.1.
The OPEC+ group is now reducing production by 7.7 million bpd, down from cuts totaling 9.7 million bpd imposed from May 1 to July 31. The group was expected to pare that further by 2 million bpd starting from Jan. 1, 2021.
"We expect OPEC+ to tweak the agreement and maintain its 7.7 million bpd cuts until the end of the first quarter of 2021," Helge Andre Martinsen, a senior oil analyst at DNB Markets told Anadolu Agency.
The Norway-based analyst said the weakened short-term oil demand outlook due to the acceleration in COVID-19 cases and Libya's comeback as an oil exporter are expected to play a significant role in the group's decision.
The Libyan oil industry was shut down in January when the Benghazi-based Libya National Army led by rebel commander Khalifa Haftar became locked in a power struggle with the United Nations-recognized Government of National Accord resulting in a blockade of the country's oil fields and ports.
The reopening of the oil fields and ports since Sept.18, after an eight-month hiatus, prompted a resurgence in Libya's oil industry to the extent that daily crude oil production in the country surpassed 1.2 million bpd from previous levels of as low as 100,000 barrels.
However, Martinsen said as one of the de facto leaders of OPEC+, no changes to the current agreement will be made without Russia's pre-approval.
"As such we expect that Russia will be instrumental in forming a consensus decision at the OPEC+ meeting and continue to support the efforts and decisions made by OPEC+," he said.
Gaurav Sharma, an independent London-based oil market analyst, pointed to possible frictions within OPEC ranks "as the organization continues to contemplate a return of higher oil demand after the COVID-19 pandemic recedes."
Sharma said that the ongoing uncertainties over whether a viable vaccine will be widely available and life will return to normal soon keep the parties together.
However, he projected OPEC to keep production levels and quotas as they are for the moment until the future of the global oil market is clearer in the first quarter of 2021.
"So, a rollover appears to be the most likely outcome," he said.
Regarding Russia's stance on the agreement, Sharma said while it is no secret that Russia prefers higher production levels, the country is expected to remain loyal to the existing agreement for now.
"If demand starts rising further in the new year, we expect Russian voices in favor of discarding production caps to go louder," he added.
Not only from Russia but also from OPEC's second-largest oil producer Iraq, the country which has been struggling with economic crisis after a recent civil war, the OPEC+ group will most probably face an opposing approach.
Instead of a "one size fits all" deal, Iraq's Finance and Deputy Prime Minister Ali Allawi said in a virtual meeting on Tuesday that the OPEC+ group should take members' economic and political conditions into consideration while deciding on the production quotas.
- Oil demand to continue determining prices
Whatever OPEC decides in the much-expected meeting, the biggest market influencer at the moment is demand, Sharma said.
"Until there are clearer signs about where oil demand is heading in the first and second quarters of 2021, oil producers are mere spectators who will react to consumer sentiment," Sharma said, however, voiced his doubt that the positive effects of a COVID-19 vaccine on the market would be instantaneous.
Stressing that an immediate return to pre-pandemic demand levels is unlikely in 2021, "the market suspects OPEC is aware of that," he said.
- 'Current oil prices already reflect 3-month delay'
About the oil prices, Sharma said the market is currently pricing in an OPEC+ and Russia momentary rollover as oil prices are expected to stabilize in the $40-50 range over the near-term.
Martinsen also agreed the current oil prices already take into account the 3-month delay in production cuts, adding that any risk or reward is no longer very attractive ahead of the OPEC+ meeting.
"A 3-month delay to the tapering of production cuts will have a neutral impact on oil prices, as it is very much expected. However, if OPEC+ decides to start easing production cuts from Jan. 1, 2021, we see a downside risk of $3-4 per barrel to the oil price. If OPEC+ decides to delay tapering by 6 months, we see an upside risk of $1-3 per barrel," Martinsen explained.
By Firdevs Yuksel and Sibel Morrow