At the end of November, the world oil market started to restore. Thanks to Joe Biden’s victory, the presidential transition period in the USA, successes with the anti-coronavirus vaccine, the price of a January futures for Brent kept growing for 5 days in a row and reached $48.18 per barrel for the first time since March.
Now OPEC has to decide whether to free oil production that had to be restricted due to the decrease in the demand for oil during the pandemics. Let us discuss the meeting of OPEC+, their decisions, and possible consequences.
How was the conference?
According to Bloomberg, on November 29th, ministers of 23 countries had a closed online conference. The main issue for discussion was whether to preserve or remove restrictions on oil production in 2021.
As Bloomberg goes, the majority voted for the restrictions in the first quarter of the upcoming year. However, the UAE and Kazakhstan insisted on increasing production.
The participants failed to make any unified decision. The next conference was planned for December 1st but then rescheduled for December 3rd.
What might be the consequences?
Many participants of the oil cartel note that the growth of oil prices is fragile and unstable. So they call for prudence and care.
To prove the fragility: on November 30th, a barrel of Brent lost 1.22% of the price and cost $47.59. On December 1st, the quotations on the ICE in London kept falling – by 0.36% more, reaching $47.42.
And this is just the beginning. If the parties do not agree, in a month production will increase by 1.9 million barrels a day in all of the OPEC countries. In the current context, this will clearly put supply over demand and push the price down.
What’s behind the position of the UAE?
Today the quota for the UAE, according to the OPEC+ agreement, amounts to 2.6 million barrels/day. Let me remind you that in 2019, the government voiced its plans for 2020, where it mentioned, among other things, daily oil production of 3.5 million barrels. The restrictions are quite serious, as you can see.
Minister of Energy Suhail al-Mazroui at the video-conference highlighted that some countries had not decreased production as promised. Then he expressed the official position of the country: production will be increased in 2021. The rumors about the UAE leaving OPEC seem to take some foothold after such statements.
Also remember that, according to Bloomberg, in November, an oil field for 2 billion barrels was discovered in Abu Dhabi. This means that the UAE now owns 107 billion barrels.
Moreover, it became known that a state company Adnoc plans to increase the stock of hard-to-get oil to 22 billion barrels and launch an investment program to raise production to 5 million barrels/day in 10 years.
On November 29th, OPEC+ members failed to agree on the limitations of oil production aimed at stabilizing the situation in the market. Analysts hope that some mutual decision will be found on December 3rd.
Bloomberg notes that all of the exporter countries realize the importance of quotas. However, such conferences give major players a chance to bargain and get better conditions.
Many experts are sure that the parties will find a version of the agreement that will make every party happy. Soon we will see if such optimism is fair.