Analyst Looks at OPEC+ Developments

Oil prices are falling today as news broke that there is no clear consensus yet among the OPEC+ alliance on how to proceed from January, Rystad Energy’s head of oil markets, Bjornar Tonhaugen, has highlighted.

“That’s what happens when the market prices in its hopes before actual agreements are made,” Tonhaugen said in a statement sent to Rigzone on Monday.

“Whoever thought - and already gambled - that postponing the planned production increase was a done deal, is now biting nails to the flesh,” he added.

In a group as large as OPEC+, it is never easy, or granted, that difficult decisions will secure consensus among members, Tonhaugen noted, adding that it was difficult for the alliance to agree on the existing deal in the beginning of the crisis and that it will not be easy to agree to bite the bullet again and deepen the deal’s impact.

“The group is scheduled to bring back curtailed production from January and, although rumors have it that an extension of current output levels is possible instead, the economies of many of its members are tied to oil sales and are currently under pressure,” Tonhaugen said.

“Yet, although the UAE and Kazakhstan appear to have dissented, it is a negotiation table, and it is still very early to conclude on what’s coming. OPEC+ has enough time to put data rationally on the table and evaluate the situation,” he added.

Tonhaugen outlined that an initial disagreement is not necessarily a deal breaker and noted that postponing the increase is the reasonable choice to support oil prices. The Rystad Energy representative added that everyone in the group understands that keeping the current deal unchanged will mean oil prices are guaranteed to decline due to a coming production surplus.

Tonhaugen also pointed out that the oil price move down today could have been deeper. Expectations that Covid-19 vaccines will be rolled out in the U.S. by year-end are providing a soft cushion for falling prices, he highlighted.

To contact the author, email andreas.exarheas@rigzone.com