OPEC+ alliance considers delay to its output hike

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American Big Oil majors lag behind their European counterparts in carbon strategies, and the US shale market will remain one of the major drilling sectors globally.

David McN | Getty Images

LONDON – Oil producer group OPEC and its partners will delay an output hike at their meeting this week as it weighs positive vaccine news against new coronovirus lockdowns and resurgent shell drilling in the US.

The coalition known as OPEC +, which includes some of the world’s largest crude producers, will begin a two-day meeting from Monday to discuss the next phase of its production policy.

It agreed to the largest single output cut in history, back in April, but was later reduced to 7.7 million in August after a decrease of 9.7 million barrels per day. Taking oil from the market, along with the OPEC kingpin, Saudi Arabia often suffers a brunt, usually raising crude oil prices and helping their commodity-focused economies.

According to market consensus, an estimated 2 million bpd January production ramp-up could be delayed, with analysts saying it would be different for three months or six months.

Price forecasting

Capital Economics Chief Commodity Economist Caroline Bain believes the meetings on Monday and Tuesday will not add to any surprise, stating that the expansion of production cuts is to a large extent.

“Now we think the price of oil (Brent) will remain at $ 60 a barrel by the end of 2021,” he said in a research note on Friday, revising the forecast due to vaccine test data from pharma giants, which give economies May help strengthen coronavirus emergencies.

Many market watchers see both oil benchmarks at $ 50 per barrel next or next year, as the shock seen in March and April gradually comes into demand. During the first wave of epidemics of Saudi Arabia and Russia, US oil prices fell into negative territory and an output deal was halted. But Brent crude futures now stand at $ 48.18 per barrel, with US West Texas Intermediate futures at $ 45.52.

Ron Smith, an oil and gas analyst at BCS Global Markets, believes the reason for the price spike is particularly on the six-month scene. In a research note sent to CNBC last week, he said that oil could go into the mid-50s by the end of 2021.

Return of shell

But both Smith and Bain point out that OPEC + will be keeping a close eye on US shell producers, and will be ready to allow them to ramp production again without increasing their own production.

US industry is now a major swing supplier in global markets, and has been a thorn in OPEC’s side for the past decade – gradually taking more market share at OPEC’s expense. The recent rally in oil prices could make a comeback in the American rig count – which has seen a 10th weekly rise in 11 weeks.

Therefore BCS Global Markets are cautious despite being cautious in the recent price rally. The investment bank says OPEC + and “Hyper-Dynamic US Shell Producers have an adequate supply of itch to re-drill into their wings.”

“(Rig activity) was steadily falling, before oil began its most recent rally. We think a significant inflection point can be crossed as oil prices move toward $ 50 / bbl , Which accelerates US oil drilling activity and a smaller. Lag, oil production, “Smith said.

“We are looking at OPEC +, which is probably looking for any reaction from American shale producers,” he said.

Bain also concluded that a gradual recovery in US production, along with the return of “some” OPEC + supply, would act as a ceiling on oil prices in the not too distant future.

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