Opec+ JMMC to mull uncertain demand, supply outlook

Mounting pressures on oil demand and Libya's production revival will be among the topics up for discussion when the Opec+ Joint Ministerial Monitoring Committee (JMMC) meets later today.

The Opec+ alliance is scheduled to ease its crude production cuts by almost 2mn b/d at the start of next year, with Opec+ ministers still resolved to move to the higher quotas, at least publicly. But uncertainties are mounting over the oil market's ability to absorb the extra supply come January.

Opec's latest supply and demand balance — which takes into account the planned rise in Opec+ output in January — points to a slight deficit in the first quarter of 2021. But it leaves little margin for error in the event of a downward demand revision, especially considering Opec's bullish forecast for a counter-seasonal 500,000 b/d increase in consumption in the first quarter.

In its latest monthly report, Opec trimmed its full-year demand growth forecast for next year by 80,000 b/d to 6.54mn b/d and pointed to a fragile outlook as the number of Covid-19 cases rise and governments tighten restrictions on movement. Opec's secretary-general Mohammed Barkindo said last week that global oil demand is recovering more slowly than anticipated.

On the supply side, Libyan crude output is ramping up after the lifting of port blockades. The IEA's latest monthly report assumes that Libya — which is exempt from the Opec+ production restraints — will increase production to 700,000 b/d in December from 300,000 b/d now. Further supplies could conceivably come from Iran next year if Democratic challenger Joe Biden wins next month's US presidential election. Biden has vowed to lift sanctions against Iran as long as Tehran resumes compliance with all restrictions on its nuclear programme.

The Opec+ Joint Technical Committee (JTC) that studies market conditions has formulated an alternative scenario that takes some of these headwinds into consideration. It assumes a more prolonged second wave of Covid-19 cases in Europe, the US and India over the next six months, leading to weaker oil demand than in the base case scenario. It also assumes that Libyan production returns to 1.1mn b/d next year. This scenario points to a 4mn b/d surplus in the first half of 2021, which would put pressure on the Opec+ group to extend or even deepen existing production cuts.

Today's meting of the JMMC, which monitors compliance with pledged output cuts, will also address the question of how the coalition can achieve its goal to fully compensate for past overproduction by the end of the year. The group has pegged its September compliance at a three-month high of 102pc, but the compliance rate falls to 97pc if the required compensatory cuts are included, according to an Opec document seen by Argus. It is unlikely that the compensation mechanism will be extended into next year, UAE oil minister Suhail al-Mazrouei said last week.

The JMMC will meet at 13:30 GMT. The next ministerial meetings to decide Opec+ production policy will be held on 30 November and 1 December.

By Rowena Edwards