The OPEC+ alliance warned of a “precarious”
outlook as a resurgent pandemic hurts oil demand, dropping
further hints about a potential change of policy next month.
Unless the coalition changes tack, it is set to add almost
2 million barrels a day from January. But increasingly traders
have warned the market cannot absorb so much oil.
Without tipping their hand, Saudi Arabia and Russia showed
their unity, with their top oil officials, Prince Abdulaziz bin
Salman and Alexander Novak, offering bearish views. The Saudi
minister warned of an “uncertain” outlook for demand and called
on OPEC+ to be “proactive.”
“We know for certain it’s uncertain,” he said as a steering
group of OPEC+ ministers gathered virtually to analyze the
market before a full meeting on Nov. 30-Dec. 1. “We have to be
able to take measures to head off negative trends and
developments — to nip them in the bud.”
Crucially, the panel didn’t discuss if OPEC+ should press
on with plans to taper output cuts next year, delegates said. It
can change course if needed, something it did earlier this year
when the alliance delayed an output increase by one month. Crude
prices held steady below $43 a barrel in London after the
officials spoke on Monday — suggesting the market is already
expecting the cartel to revise its plans.
Read: OPEC+ Faces More Pressure to Change Course as
Saudi Arabia and Russia stepped up diplomacy in the lead up
to Monday’s meeting, with President Vladimir Putin and Crown
Prince Mohammed Bin Salman speaking twice by phone in a week. It
was the first time the nations’ leaders have had such frequent
calls since the depths of the oil crisis in April, when they
were hashing out a deal to cut supply and bring the price war to
The countries are under pressure to prevent a repeat of the
price slump that shook the industry earlier this year. The
pandemic is surging again in many parts of the world and OPEC
member Libya is also boosting production.
“We see how difficult the recovery is, we see a lot of
uncertainties that get in the way of coming back to the pre-
crisis levels of the global oil demand,” Novak said in his
opening remarks at the OPEC+ Joint Ministerial Monitoring
Committee. The demand recovery “has slowed down amid the second
coronavirus wave, but it hasn’t stopped altogether.”
Prince Abdulaziz last month insisted the Organization of
Petroleum Exporting Countries and its allies will stabilize the
market and dared oil speculators to test his resolve. He
reiterated that determination on Monday.
By insisting that the group should be preventive, the Saudi
minister — an admirer of former Federal Reserve Chairman Alan
Greenspan — seemed to be taking a cue from the world of central
banking, where some monetary authorities prefer to err on the
side of doing too much than too little during a recession.
Prince Abdulaziz appeared to suggest as much.
“I cannot emphasize strongly enough how vital it is to show
the strength of our resolve,” he said. “Nobody in the market
should be in any doubt as to our commitment and our intent,” he
OPEC+ is facing a slowdown in demand. Consumption isn’t
likely to return to prior levels for at least 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.
If the group “adds production as scheduled in January, then
we will not draw crude stocks anymore,” Torbjorn Tornqvist,
chief executive officer of trading house Gunvor Group Ltd., said
in an interview. – BloomBerg