Opec+ faces resistance to rollover

Opec and its non-Opec partners go into their ministerial conferences this week facing an increasingly complicated decision — whether, and how far, to extend their current crude output cuts into next year. What were already shaping up to be difficult meetings now have the added hurdle of some 11th-hour resistance against a rollover.

Resistance surfaced at a hastily-planned meeting of Joint Ministerial Monitoring Committee (JMMC) members late yesterday, aimed at trying to reconcile the different positions among the committee's nine members. Opec ministers meet virtually at 14:00 Vienna time today, followed by a full Opec+ meeting tomorrow.

At the conclusion of yesterday's talks, there were still question marks over the position of Russia, Kazakhstan and the UAE, according to Opec+ sources. Of the three, only Kazakhstan firmly rejected the idea of an extension of current cuts beyond December, insisting that the group should stick with its original plan. Kazakhstan has been edging production up over the past two months, and marginally exceeded its 1.397mn b/d cap in October. Russia showed some resistance to a rollover too but did not dismiss it outright. The UAE did not formally communicate its position, choosing to wait until the ministerial meetings.

The JMMC groups together Opec members Saudi Arabia, the UAE, Kuwait, Venezuela, Nigeria, Iraq and Algeria with non-Opec participants Russia and Kazakhstan. Saudi Arabia and Russia co-chair the committee. The alliance is due to raise its combined crude production by just shy of 2mn b/d from January as it transitions to the third and final stage of its output pact. This would taper the collective cut to 5.76mn b/d until April 2022, from 7.68mn b/d now.

The worsening Covid-19 outlook in many regions, coupled with the rapid return of Libyan production since September, has prompted the group to consider making changes to this plan for fear that the market would not be able to absorb the extra 2mn b/d. This was reflected at the Opec+ Joint Technical Committee (JTC) meeting on 16 November, where several policy options were discussed including postponing the output increase by three or six months. Opec+ members argued that oil market fundamentals still point to significant oversupply early next year, particularly given their assumption that the mass development and distribution of vaccines is unlikely until the second half of 2021.

Will they? won't they?

Opec would have preferred to go into its meeting today with consensus, but sources say the group remains confident that agreement can be reached over the coming two days. But this may not come easily. Frustrations are building among some members over their production quotas, and among others over those same countries' poor compliance records.

The UAE took a hard line on compliance at the most recent JMMC meeting on 17 November, supported by its Mideast Gulf ally Kuwait, according to sources. The UAE argued that there is little point in extending current cuts beyond December if countries that have not fully met their commitments so far continue to produce above quota. This may have been a factor in the UAE's reluctance to communicate its position at yesterday's meeting.

A dozen Opec+ countries produced 390,000 b/d over quota in May-October. The biggest was Iraq at just over 100,000 b/d, while Russia produced nearly 90,000 b/d over target. Saudi oil minister Prince Abdulaziz said in September that overproducing countries had until the end of this year to compensate, after the original September deadline expired. The deadline is almost certain to be extended again, sources said.

By Nader Itayim