OPEC meeting tomorrow…Will it increase its production again
OPEC meeting tomorrow…Will it increase its production again?
OPEC meeting tomorrow : Last week witnessed limited and tight trading,
and some stock exchanges closed their doors to trading because of Christmas.
Many important events await us this week; especially it is the first trading week in 2021.
Evest will see if optimism will return to markets again or will continue what was started last year.
An OPEC meeting tomorrow
OPEC and members of the organizations of Petroleum Exporting Countries and its allies are supposed
to meet on Monday to decide the volume of oil to be produced in February.
This comes after the organization met at the end of November and the start of December,
when it decided to add 500.000 barrels per day to current production levels during of this month.
It was supposed to increase production by 2 million barrels per day according to its previous plan.
But taking into account the conditions of struggling oil market, members decided to limit this increase by only a quarter.
Members of the organization agreed to meet monthly to agree on production levels in next month,
where it is possible to increase production, reduce it or stay at current levels depending on market conditions.
But. What will be the decision?
As for the market participants, they definitely prefer the situation to remain as it is.
They have concerns about increasing production again, as this may affect the market negatively.
On the part of members, there are still differences on this matter among the participating countries
of the organization as some of them are eager to return production to previous levels again,
while others believe that the current circumstances necessitate them to continue to support prices.
Both the United Arab Emirates and Russia have invested in increasing their production capacity during last period.
This means that they want even indirectly to increase production again.
Alexander Novak, the Russian Prime Minister had said earlier that he is comfortable
with the presence of oil between the levels of $ 45 to 55 which indirectly
means that he wants to increase current levels of production by at least
another half a million barrels of oil during February.
As for UAE, it seems to be the fiercest in this matter, as it showed its panic and
distress about reducing production during the coming period.
The UAE Minister of Energy, Suhail Al Mazrouei did not let anything
happen without showing his dissatisfaction with the reductions that are made.
This is also another challenge within the organization. Countries like Nigeria and Iraq suffer from difficult internal conditions.
He announced earlier that these circumstances did not receive sufficient attention
within the organization but their circumstances were not taken into account,
as they failed to compensate for the surplus production during the year.
As for Libya, which is exempt from cuts in its production levels due to its internal conditions,
it raised its production capacity from less than 100.000 barrels per day in August to more than 2 million barrels
per day at the end of the year after the return of Sharara field to its pre-production levels before closer.
So, if we can expect something for tomorrow’s meeting,
we in Evest expect that OPIC ministers to maintain current production levels at least during February
so as to feel the pulse of the market after raising production by 500 million per day,
amid the growing case of the epidemic and the emergence of a new strain of the virus which may impede the movement of oil.
In the event that it is proved that the increase did not affect the market or
that the market performed positively during the coming period, the decision of the coming meeting may be to gradually raise production again.
Everything depends unanimity on a single decision within the organization
which is witnessing major disagreements among some members.
A year of forgetfulness for oil
Although conditions improved slightly during November and December,
all market participants will want 2020 not to have had all these burdens on industry.
Global economies in particular have stopped since the start of March, as the Corona virus Covid-19 crisis toppled the market and threatening all attempts of economic recovery. Also، West Texas Intermediate Index was negative for some time during April.
According to the International Energy Agency ,
oil demand decreased in 2020 by 8.8 million barrels per day compared to 2019,
as expectations indicate a new decline of 3.1 million barrels during 2021.
Oil was not a commodity to suffer alone but many of the market participants faced great hardship.
Exxon Mobil was removed from Dow Jones Index and many companies involved in the production
of shale oil such as Chesapeake which was the most famous among them.
New challenges in markets
There is a new president in the United States of America.
What does this mean? Will his domestic and foreign policy affect oil?
The winning president of the recent elections, Joe Biden has said
during many of his speeches that he does not support fossil oil.
This matter is not supportive for oil.
Moreover, his foreign policy may change from that of Trump.
Here, we are talking about Iran and Venezuela.
Trump had signed heavy sanctions against them but Biden administration promised
to review these matters as it may revive the nuclear agreement with Tehran which will put pressure on prices again.
On the other hand, despite the start of vaccination operations with vaccines against Covid-19 during last year,
this matter needs a lot of time to prove effectiveness in facing the virus,
lifting restrictions and returning normal life to what it was in 2019,
as this is the biggest influence on the low level of prices during last year.
2020 will be full of surprises on all fronts, but we hope that these surprises
will be pleasant for participants in oil market especially after they have
suffered a lot from the decline of more than 20% during last year.