Opec+ goes into day two of talks with all to play for

Opec and its allies enter an unplanned second day of their ministerial meeting after talks about how to adjust production policy in February ended in a stalemate yesterday.

The meeting broke up with a clear split among the coalition's 23 members as to what course should be taken.

Most, including Opec heavyweight Saudi Arabia, are in favor of holding January production levels steady into February but face resistance from non-Opec Russia and Kazakhstan, which back a 500,000 b/d increase in collective output next month, delegates said.

Russia and Kazakhstan are "focusing on market share" whereas others in the group "are placing more importance on oil prices," Iran's oil minister Bijan Namdar Zanganeh said on his exit from yesterday's meeting.

Opec+ had scheduled just one day for the meeting, which followed a gathering of the group's Joint Ministerial Monitoring Committee (JMMC) that monitors compliance with the output cut agreement. But Russia — still led by former energy minister, now deputy prime minister Alexander Novak — showed few signs of budging on its demand to raise output next month, prompting an adjournment, delegates said.

Zanganeh confirmed late yesterday these two main scenarios are on the table, "each 180 degrees different from one another." Four scenarios were drawn up by the Opec+ Joint Technical Committee (JTC) at their 3 January meeting and circulated among ministers for consideration at the JMMC, according to an internal document seen by Argus.

One delegate said Saudi oil minister Prince Abdulaziz bin Salman hinted before the break-up of the meeting yesterday that a third, compromise proposal, could materialize.

The diverging views reflect both the muddy market outlook, and the difficulty of the task at hand. Recent positive developments around the roll-out of Covid-19 vaccines in many countries have spurred optimism about a demand recovery. But the emergence of more infectious strains of the virus in Europe and elsewhere have triggered new travel restrictions and lockdowns including in parts of the UK yesterday.

Prince Abdulaziz bin Salman touched on this ahead of yesterday's meeting, highlighting the "worrying and unpredictable" nature of the new variants. He cautioned his Opec+ colleagues to resist the urge to declare victory too soon.

"Do not put at risk all that we have achieved for the sake of an instant but illusionary benefit," he said.

Opec sees global oil demand rising by 5.9mn b/d to 95.9mn b/d this year, but before the pandemic it had this at 102mn b/d.

The complexity of the Opec+ group's task is evident in the number and variation of scenarios it set out for the JMMC to consider. Two envisaged a 500,000 b/d increase in Opec+ production February, March and April, with one assuming the demand and supply balance as issued in the Opec December Monthly Oil Market Report (MOMR), and the other assuming higher contractions in world oil demand and non-Opec supply for 2020, and lower demand and non-Opec supply growth in 2021.

A third took the December MOMR figures, but assumed Opec+ would maintain January production levels into February and March, raise production by 500,000 b/d in each of the three months that follow, and maintain output at that level until the end of the year. The fourth assumed Opec+ would reduce production by 500,000 b/d in February, maintain it at that level in March, and then raise output by 500,000 b/d each month from April to July, again assuming December MOMR figures.

The JTC also assumed in all scenarios that Iranian and Venezuelan output will remain at November 2020 levels throughout 2021, which may seem unreasonable given noises from the incoming US administration of president-elect Joe Biden about rejoining the Iran nuclear deal and lifting at least some of the US sanctions imposed on both countries. Libyan output will increase to 1.2mn b/d this year from 1.1mn b/d in the fourth quarter on average, in all JTC scenarios.

The Opec+ meeting is scheduled to begin today at 14:30 GMT.

By Nader Itayim