Analysts Look at OPEC+ Deal

The latest OPEC+ deal reflects a determination to avoid a repeat of the price war in March and April this year.

That’s what Wood Mackenzie (Woodmac) Vice President Ann-Louise Hittle outlined in a statement sent to Rigzone on Friday, adding that Woodmac expects Brent to hold a floor near $40 per barrel in January and average at least $45 per barrel for the month with this agreement. 

“After the initial OPEC session on November 30, 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 million barrels per day,” Hittle said in the statement.

“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 million barrel per day planned increase,” Hittle added.

“The compromise agreement, if continued through February and March by adding 0.5 million barrels per day to each of these months on top of the previous month’s increase, leads to an oversupply of 1.6 million barrels per day for Q1 2021,” Hittle continued.

Commenting on OPEC+’s latest agreement, Rystad Energy’s senior oil markets analyst, Paola Rodriguez Masiu, outlined that the pact is not the nightmare scenario that the market feared, but also not what it really expected weeks ago.

“During this week traders realized that OPEC+ was not as aligned as they expected and that extending the current cut levels would not be the piece of cake they hoped for,” Masiu stated.

“Markets are now reacting positively and prices are recording a small increase as 500,000 of extra supply is not deadly for balances,” Masiu added.

“[The] meeting is a solid reminder that a deal is never sure until the real final discussions take place,” Masiu continued.

Under the latest OPEC+ deal, the group will adjust production from -7.7 million barrels per day to -7.2 million barrels per day, beginning in January 2021. The group agreed to hold monthly meetings from January to assess market conditions and decide on further production adjustments for the following month, with further monthly adjustments being no more than 0.5 million barrels per day. OPEC+ also agreed to extend the compensation period until the end of March 2021, to ensure full compensation of over production from all OPEC+ members.

Prior to this meeting, OPEC+’s production was scheduled to rise by around two million barrels per day from January 2021.

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