OPEC+ set to continue on current path but baselines, Iran to feature
Quantum Commodity Intelligence - The OPEC+ producer group goes into its first full meeting on Wednesday since the fraught July gathering when a plan to increase production by 2 million barrels per day by year-end was derailed by a row over baseline production levels.
With the baseline issue subsequently resolved, analysts expect a more harmonious meeting and a likely agreement to continue with the policy of adding 400,000 bpd per day each month until year-end, although some members are expected to lobby for a lower level in Q4.
Ministers and delegates can take comfort that the market is back on track, following an August wobble that led to a 10% tumble in crude oil prices as China and other Asia countries rolled out travel restrictions that wiped out around 1 million bpd of demand, primarily from China.
Brent prices are comfortably back above $70/b, and more importantly, for Middle East sellers, Dubai has rallied strongly in the last 10 days of August.
Even so, Quantum's monthly average price for October-loading Dubai crude was $69.49/b, down over 4.5% from the average for September loading of $72.91/b.
But having slumped to a low of around $65/b on August 19, Dubai cash for October delivery was assessed by Quantum at $71.15/b on August 31, compared to the September final settlement of $73.90/b on July 30.
OPEC+ has never issued a formal price target, only saying its role is to balance supply/demand fundamentals and keep tabs on inventories, but $65-$75/b crude is seen as acceptable for now to the majority of the 23-member group.
While $100/b oil has been regularly touted in recent months by several leading industry figures, such a level risks derailing the global recovery and opening the floodgates for US shale oil.
Meanwhile, the baseline discussion has not entirely gone away, with Nigeria and possibly other producers looking for a hike next year – but the countries that actually will have spare capacity in 2022 have largely been accounted for, including Saudi Arabia, UAE, Russia and Iraq.
Iran
The other potential thorny issue is accommodating Iran if US sanctions are lifted -- if and when talks resume in the next few weeks.
While both sides say they want to resume the 2015 Joint Comprehensive Plan of Action (JCPOA), diplomatic channels have turned decidedly frosty since the hardliner Ebrahim Raisi took over as president in early August.
Although a breakthrough in the ongoing Vienna talks looks unlikely right now, OPEC+ will have to at least factor in potentially more than 1 million bpd of additional Iranian crude coming onto the market.
On the other hand, a complete breakdown in talks could see the US pivot to a much harder stance on sanctions, which in turn may lead to a call on additional OPEC+ barrels.
The OPEC+ joint technical committee (JTC) said Tuesday that it expects the global oil market to remain in a 900,000 bpd deficit this year but hit a surplus of 2.5 million bpd in 2022 as the group raises production.
A key success of the OPEC+ group has been returning global inventories to 2015-2019 averages, so any signal that stocks could rebound next year may well put the brakes on further increases after December.
For Wednesday's meeting, a 'no change' is largely expected but perhaps accompanied by a strong warning that the producer group could quickly reverse current policy should the demand recovery suffer another Covid-19 wobble heading into the fourth quarter.
