OPEC+ under increasing pressure to stabilise markets as oil ministers meet

*Oil demand is ‘anemic’ and the cartel will act to prevent a market ‘relapse’, says Mohammad Barkindo, Secretary-General of OPEC

*Market too fragile for more OPEC+ oil, say banks and traders

Alexander Davis | ConsumerConnect

As a spike in the novel Coronavirus (COVID-19) cases and rising supply from Libya put pressure on oil prices in the international market, OPEC+, a coalition of crude producers plans a meeting Monday, October 19 to discuss the oil market and whether to ease production curbs amid the virus crisis.

When OPEC and its allies met September 2020, Saudi Arabia’s Energy Minister had dared oil speculators to test his determination to stabilise global markets, says agency report.

However, in view of a resurgent pandemic threatening demand once again, the moment of reckoning is getting closer.

According to report, the coalition of crude producers gathers Monday to assess the state of the market.

Though no supply decisions are expected until December 1, leading members Saudi Arabia and Russia are already stepping up diplomacy.

Russian President Vladimir Putin and Saudi Arabia Crown Prince Mohammed Bin Salman have spoken twice by phone in a week, when they were hashing out a deal to cut supply and bring the price war to an end, Bloomberg report stated.

With oil stuck at around $40, and more supply coming online from Libya, the cartel is now under pressure to revise its plan to ease those output cuts.

It has already relaxed them by about 2 million barrels a day, and is due to add another 1.9 million in January.

OPEC+ members meet on Monday to discuss the oil market and whether to ease production curbs, just as a spike in Coronavirus cases and rising supply from Libya put pressure on prices.

While members are publicly sticking with that plan for now, Nigerian-born OPEC Secretary-General Mohammad Barkindo nevertheless, acknowledged Thursday, October 15, that demand is “anemic” and the cartel will act to prevent a market “relapse.”

Its own internal reports points to the risk of a new surplus. And in private, delegates admit they’re open to delaying the increase when a formal decision is taken in six weeks.

Influential voices in the market are already telling OPEC+ to be wary about the planned increase.

Trading houses like Mercuria Energy Group, banks including JPMorgan Chase & Co. and institutions, such as the International Energy Agency are counselling that markets remain too fragile to easily absorb the additional barrels.

Natasha Kaneva, an analyst at JPMorgan in New York, United States, said: “Adding oil to the market at such a time is not an advisable gambit.”

These views may be considered during Monday’s online session of the Joint Ministerial Monitoring Committee, chaired by Saudi Arabian Energy Minister Prince Abdulaziz bin Salman and his Russian counterpart Alexander Novak.

The panel won’t decide on next year’s supply, which will be finalised at the larger ministerial meetings on November 30-December 1.

Report says it’s a decision that will have profound implications not just for the Organization of Petroleum Exporting Countries ─ many of whose member nations need prices significantly above current levels to cover government spending ─ but also the wider industry, from shale drillers to majors like Exxon Mobil Corporation.

On a possible glimmer of hope, there have been glimmers of hope for oil prices recently that producers must take care not to snuff out.

Global oil demand has recovered to 94% of pre-pandemic levels, depleting the world’s bloated inventories, the International Energy Agency estimates.

Buyers in China, the world’s second-biggest consumer, are set to boost purchases after slowing down over the summer. Indian refiners are cranking up operations before the nation’s two main festivals.

It was learnt that stronger consumption from the two Asian behemoths will play a big part in the final decision in December.

Ministers will also consider data from other parts of the world as the virus spreads, and the result of the US presidential election in early November.

But a full return to prior levels of demand will take a couple of years, particularly for jet fuel, trading houses like Vitol Group and Trafigura Group predict.

OPEC+ also needs to keep whittling away global stockpiles to avoid another glut and a plunge in prices.

Torbjorn Tornqvist, Chief Executive Officer (CEO) of trading house Gunvor Group Limited, in an interview said if the group “adds production as scheduled in January, then we will not draw crude stocks anymore.”

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