OPEC + faces exit decision as Omicron puts market in disarray – .

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OPEC + faces exit decision as Omicron puts market in disarray – .


(Bloomberg) – OPEC and its allies have headed for a second day of talks on whether to halt increased production as the resurgence of the pandemic casts disarray on the outlook for next year.
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With crude already in a bear market as the omicron variant of Covid-19 jeopardizes demand, traders widely expected the Saudi-Russian-led alliance to postpone a modest increase in offer scheduled for January. Coalition technical experts predict on Wednesday that markets will face a first-quarter surplus which, although lower than initially thought, remains substantial.

“Markets are now assessing the worst for global oil demand as there is extreme uncertainty regarding the omicron variant,” Al Salazar, vice president of intelligence at Enverus Intelligence Research, said in a note. “Travel restrictions combined with the economic ripple effects are now shifting the risk on oil prices decidedly to the downside. “

Oil futures sank again on Wednesday, trading near $ 65 a barrel in New York City as the first case of the novel strain of coronavirus was detected in the United States

Still, the outcome of Thursday’s meeting was still uncertain. Despite the massive sales, Riyadh faces pressure from the United States and other key consumers to ensure supplies remain plentiful enough to avoid a spike in inflation. Ignoring such considerations could strain the kingdom’s already strained relations with Washington.

Cautious approach

The first round of OPEC talks on Wednesday focused only on administrative matters, such as the appointment of the next secretary general, delegates said, asking not to be named because the information was private. The meeting was followed by the Joint Technical Committee, a group of experts that updated supply and demand estimates that ministers will use in making their decision on Thursday.

Despite the darkening outlook for the oil market, the panel forecast an average oversupply of 1.9 million barrels per day in the first quarter, down from a previous estimate of 3 million barrels per day, delegates said.

Oil futures are down about 20% in New York from the seven-year high reached in late October, when the recovery in global demand for oil from the pandemic raised fears of the inflationary danger of ‘soaring fuel costs. This brutal reversal has OPEC + on the back foot.

“The sudden appearance of a new, potentially more dangerous variant adds to new bottlenecks,” Angolan Minister of Mineral Resources and Petroleum Diamantino Azevedo said on Wednesday at the opening session of the meeting. “In these uncertain times, it is imperative” that OPEC + “remain cautious in our approach and prepare to be proactive if market conditions warrant”.

Members entered the meeting with an open mind, delegates said. One of the few ministers to speak officially on production policy, Iraqi Ihsan Abdul Jabbar Ismaael, has said he will accept any decision by the group, whether it be an increase in supply. or a break.

On the defensive

The majority of OPEC observers polled by Bloomberg expected the latter. Eighteen of 25 traders, analysts and brokers polled in a global survey predicted the group would postpone the increase in production. This could certainly match the philosophy of Saudi Energy Minister Prince Abdulaziz bin Salman, who has repeatedly opted for caution in restarting interrupted production.

“This seems precisely the scenario for which the pause option was designed when the producer group announced its step-up plan in July,” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC.

Traders even speculated that OPEC + could reduce rather than increase supply if crude prices worsen their decline. Such a move would run counter to recent diplomacy, which suggests Riyadh and Washington are seeking to ease tensions.

“In the end, I expect OPEC + to vigorously defend the supply balance that it has worked hard to restore since last year,” said Vandana Hari, founder of Vanda Insights at Singapore.

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