Analyst Talks Most Likely OPEC+ Scenario

The most likely scenario is that OPEC+ sticks to its plan to incrementally increase production by 400,000 barrels per day.

That’s according to Rystad Energy’s senior oil markets analyst Louise Dickson, who outlined that, although the supply picture is “without a doubt materially tighter” than it was at the last OPEC+ meeting, it would be “uncharacteristic” for OPEC+ to implement a “knee-jerk policy” in reaction to the energy crisis “just yet”.

“Nevertheless, a surprise from OPEC+ is not unheard of and there is historical precedent of the group opting for an abrupt change in policy when the markets signaled the need,” Dickson said in a statement sent to Rigzone recently.

“Such policy changes, however, are used sparsely and are the exception - hardly the rule,” Dickson added in the statement.

If OPEC+ sticks to the plan then we shouldn’t see much downside, Dickson noted. The Rystad Energy analyst added, however, that reports indicate that talks are open to other scenarios too.

Dickson highlighted that what OPEC+ will decide at its next meeting has particular gravity, as the alliance holds 9.2 million barrels per day of the world’s remaining spare oil production capacity of 10 million barrels per day, “making it effectively the strongest decision maker of the global oil market”.

“OPEC+ finds itself in a relatively comfortable perch, as it is not only the decider of how much volumes to taper, but also boasting the advantage that its barrels currently off the market, mostly medium crude barrels, are in especially high demand for refiners,” Dickson said.

Dickson noted that the energy crisis, should a colder than usual winter materialize, will certainly boost oil demand faster than previously expected by OPEC+ and other market players, but added that the bump will likely be limited to one million barrels per day.

“Most of the switching capacity to oil will only occur in Asia, and will likely be limited to the power sector, with potential to also be used in heating should colder temperatures make this switch necessary,” Dickson said.

“OPEC+ of course cannot dictate the weather, so climate events could take the oil price to new volatile extremes, especially if the stresses on supply chains – congested ports, slowed rail deliveries, and truck driver labor shortages – exacerbate the already fragile situation,” Dickson warned.

The 21st OPEC and non-OPEC ministerial meeting is due to take place today via videoconference. In July, OPEC+ resolved to adjust the group’s overall production by 400,000 barrels per day on a monthly basis starting in August 2021 until the phase out a 5.8 million barrel per day production adjustment. The 20th OPEC and non-OPEC ministerial meeting, which was held via videoconference at the beginning of September, reconfirmed the group’s production adjustment plan and its decision to increase monthly overall production by 400,000 barrels per day for the month of October.

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