Update (0900ET): According to leaked details from a delegate, the JMMC has recommended proceeding with a 400,000 barrel a day increase in November. As we detailed below, this is on the more bullish side of the possible scenarios.
Brent is back above $80 and WTI is extending gains above $76.50 for now…
…that is the highest for US Crude oil since late 2014…
The JMMC meeting includes Saudi Arabia and Russia. More often than not, whatever the JMMC agrees, the rest of the OPEC+ group simply rubber stamps later. But, as Bloomberg’s Javier Blas notes, there’s precedent this year of the JMMC agreeing something, and later the move getting derailed by opposition from others, notably the UAE.
So nothing is agreed until everyone agrees.
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Newsquawk previewed the OPEC+ Meeting earlier
OPEC+ Meeting
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The JMMC meeting begins at 14:00BST/09:00EDT and the OPEC+ meeting at 15:00 /10:00EDT, subject to delays
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Markets expect OPEC+ to stick to its plan of raising monthly oil output by +400k BPD; some look for a larger-than-planned hike.
OVERVIEW: Markets expect OPEC+ to stick to its plan of hiking monthly output by 400k BPD, with delegates recently suggesting that the meeting was likely to be a smooth affair. Some have called on the group to further loosen supply curbs by more than the planned amount amid a backdrop of rising oil prices, its impact on company margins, as well as on consumer demand. Although surprises cannot be ruled out, the lack of friction among members in the run-up to the meetings suggest it will be a straight-forward series of meetings.
CURRENT PLAN: Members in July agreed to ease the pandemic-era output cuts in increments of 400k BPD per month until April 2022, with the overall supply curb pact extended through the end of 2022, originally slated to end in April. For the extended period from May 2022, production baselines have been revised higher for the UAE (3.5mln vs prev. 3.168 mln), Iraq (4.803mln vs prev. 4.653mln), Kuwait (2.959mln vs prev. 2.809mln), Saudi Arabia and Russia (both to 11.5mln vs prev. 11mln). These increases must be rubber-stamped at the monthly confabs.
OIL PRICES: Oil prices have remained at elevated levels as economies re-open. Analysts expect demand to be supportive for prices as travel routes re-open ahead of the winter season. Some also suggest that the supply-side of the equation may continue to be supported into next year on hangovers from Hurricane Ida, as well as the follow-through from the higher gas prices and the electricity crunch in China, which has led to the use of more diesel-powered generators.
RECENT REPORTS: Sources have said that OPEC+ was considering options for releasing more oil to the market at this meeting, in excess of 400k BPD. One source suggested an 800k BPD rise for one month was possible, bringing forward the planned increase for the next month (i.e. with no hike in December). This would be somewhat aligned with sources back in July via Energy Intel, which said “Producers see the potential for a significant dip in oil demand in the first half of next year, and sources say it is likely they will take a pause from monthly increases this December.” Other reports have suggested that despite Brent crude prices recently surging to three-year highs above USD 80/bbl, the group was unlikely to deviate from its current plan. In aggregate, the reports imply that OPEC+ is once again leaving all options on the table.
EXTERNAL PRESSURE: The White House has recently voiced concern regarding the persistently high oil prices. President Biden’s National Security Adviser stressed the importance of creating conditions to support economic recovery in a meeting with Saudi Arabia recently. Despite these talks, there has been little in the way of any commitment voiced by Saudi following the meeting. China has also been trying to mitigate higher oil prices via the release of state reserves – some analysts believe that this activist Chinese policy is one of the largest risks facing oil prices, particularly amid the threat of an economic slowdown in the world’s second largest economy.
DEMAND FACTORS: Heading into the winter period, members are said to be cognizant of surging European gas prices reportedly prompting a switch from gas to oil in the power and heating sectors. The JTC meeting last week suggested that this tightness in the gas market could further drive demand for substitute fuels, especially if this winter seasons is colder than usual. The JTC’s base case adopted the forecasts from the most recent OPEC Monthly Oil Market Report (MOMR), where demand is seen growing by 6mln BPD this year, and 4.2mln BPD next year; a lower-demand scenario sees 5.4mln BPD demand growth this year and 3.7mln BPD in 2022. The MOMR also said that there was an increased risk of COVID-19 cases primarily fuelled by the Delta variant, and that is clouding oil demand prospects, which saw the group revise down its 4Q21 estimates.
SUPPLY FACTORS: There have been reports that some African nations were struggling to pump more oil amid delayed maintenance and low investments, with Angola and Nigeria said to average almost 300k BPD below their quota. OPEC Secretary General Barkindo recently said that the world cannot afford to under-invest in oil, and consumers should brace for more energy shortages ahead unless this investment is forthcoming. Elsewhere, progress on the Iranian nuclear deal is slow, and talks are yet to resume after the ‘pause’ announced in June; this keeps at bay the threat of imminent additions of Iranian barrels to global markets.
HOUSE VIEWS:
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Barclays raised its 2022 oil price forecast by USD 9/bbl to USD 77/bbl as it expects the continued recovery in demand to widen the demand/supply deficit. The forecasts also signals a “reduced confidence” in the revival of the Iranian nuclear deal. “OPEC+ tapering would not plug the oil supply gap through at least Q1 2022 as demand recovery is likely to continue to outpace this, due partly to limited capacity of some producers in the group to ramp up output,” its analysts said.
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Goldman Sachs raised its year-end Brent forecast to by USD 10/bbl to USD 90/bbl amid faster-than-expected demand recovery alongside the production impact from Hurricane Ida. “While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.” The bank said that demand risks were “squarely” skewed to the upside in the winter with tailwinds from oil-fired power generators. GS however lowered its 2022 forecasts as it expects the return of Iranian oil.
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Morgan Stanley maintained its oil price forecast, but noted that the scenario for USD 85/bbl clearly exists. MS expects oil inventories to continue to draw at high rates and suggests that market is more under-supplied than generally perceived. The bank sees the market under-supplied into 2022 amid its expectation for further OPEC discipline.
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RBC expects the OPEC leadership “to signal a willingness to bring back more barrels if market conditions materially tighten from here, particularly if gas substitution requirements are projected to rise in winter.”
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Vitol believes OPEC+ will be the main driver of oil markets in the coming months, and thinks that there is little chance of Iranian oil returning to the market. The oil trader also cited inferior US influence on oil prices vs OPEC, suggesting “the rig count is simply not there for production to catch up in a way that would be necessary if you needed extra oil.”
Latest: According to Energy Intel, the OPEC+ options include 400k BPD easing in November or 800k BPD easing in November with a pause in December.
Options for opec plus: 400k easing in November OR 800k easing in November with a pause in December (so in effect no increase). #OOTT #opec
— Amena Bakr (@Amena__Bakr) October 4, 2021
