What Next for OPEC+?

What Next for OPEC+?
OPEC+ output increases are likely to cease after December in order to limit inventory builds in 2022, according to Standard Chartered.

OPEC+ output increases are likely to cease after December in order to limit inventory builds in 2022.

That’s according to Standard Chartered, which made the statement in its latest oil market report, which was sent to Rigzone recently.

“We expect further 400,000 barrel per day increases to be agreed at each of the two next meetings but think the increases will be halted at the December meeting,” Standard Chartered stated in the report. “Our expectations are based on our modelling of the call on OPEC+ crude and inventories,” the company added.

Standard Chartered calculates the average month on month increase in the call on OPEC+ crude for the balance of 2021 at 417,000 barrels per day, which the company says justifies continuing the 400,000 barrel per day increases through to December. The business warns, however, that the average month on month increase in the call on OPEC+ is just 87,000 barrels per day in the first quarter of 2022 and decreases slightly in the following two quarters. Standard Chartered outlined that the forecasts highlighted in its report imply that any OPEC+ output increases after December would result in an oversupplied market throughout next year.

“OPEC+ faces being caught between a flattening of the demand recovery and rising output from outside the grouping, most particularly in the U.S,” Standard Chartered stated.

“The 2022 outlook already appears challenging; any return of Iranian barrels would change the dynamic for OPEC+ from an inability to increase output further to a need to throttle back,” Standard Chartered added.

The company noted that until very recently many analysts were talking of a supply crunch and $100 per barrel prices in 2021 but added that it thinks there is an implication that prices closer to $60 per barrel would represent a more reasonable base case.

OPEC+’s last meeting took place on September 1 and “left barely a ripple in its wake”, according to Standard Chartered, “with no pre-meeting webcast and no post-meeting press conference”.

“Ministers rapidly green-lighted the next of the 400,000 barrel per day monthly increases agreed in July,” Standard Chartered said.

Commenting on OPEC+’s latest actions in a statement sent to Rigzone late last week, Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, said OPEC+ policy stability is providing the long-term predictability that traders need to cement the currently strong oil price levels.

In a statement posted on its website, OPEC+ revealed that its latest meeting noted that, while the effects of the Covid-19 pandemic continue to cast some uncertainty, market fundamentals have strengthened and OECD stocks continue to fall as the recovery accelerates. The organization highlighted that overall conformity to the production adjustments was 110 percent in July, including Mexico. The next OPEC+ meeting is scheduled to take place on October 4.

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

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