Ahead of tomorrow’s OPEC+ summit, today’s Joint Ministerial Monitoring Committee (JMMC) video conference ended with no policy recommendation, which means traders will be closely watching tomorrow’s full OPEC+ meeting (which begins at 8am) for decisions on sentiment, pace and scale of any output increases.
According to Energy Intel’s Amena Bakr, some member states appeared to be pushing for a higher level of easing of the cuts, while others are being more cautious. The divergence could be problematic because according to Bakr, “conformity for all member states,is being stressed as a priority.”
— Amena Bakr (@Amena__Bakr) March 3, 2021
As a reminder, OPEC+ options include a rollover of current cuts, with sources reporting that several members supported the idea of no curb easing in April. As Newsquawk notes, yesterday sources noted OPEC+ is poised to cool down the oil market by raising production, thus taking pressure off their battered fiscal positions and potentially keeping a lid on global inflation. Saudi Arabia is said to still be considering how to phase out its voluntary cut.
Boosting the odds for a production hike, tomorrow’s meeting comes as the recent glut in crude that built up during the pandemic is unwinding at the steepest rate in two decades, according to Morgan Stanley. At the same time backwardation remains elevated, indicating supplies are tight.
While traders generally expect a boost in output in the 1-1.5MMbpd range, ANZ Banking Group has come up with a contrarian view, writing overnight that OPEC+ has a “perfect opportunity” to add 750,000 barrels. The additional 750k bpd supply from April assumes a 500k bpd increase across the group, coupled with a 250k bpd increase from Saudi Arabia.
“This should be welcomed by the market, with expectations sitting at a 1.5m bpd increase,” bank says in note by Daniel Hynes and Soni Kumari.
While OECD inventories are not far off target levels and prices are close to fiscal breakeven for some producers, market optimism is not being matched by price action in the physical markets, the bank says. That combination leaves the grouping “in a difficult position,” but the gathering pace of recovery presents “the perfect opportunity for OPEC+ to raise production,” analysts say.
Amid the news, Brent remains higher on the session, trading up $1 to $63.70 last.
Finally, courtesy of Newsquawk, here is a complete breakdown of what to expect from OPEC tomorrow:
- OVERVIEW: The Joint Technical Committee (JTC) composed of OPEC+ technical experts convened yesterday ahead of today’s Joint Ministerial Monitoring Committee (JMMC) meeting – slated for 13:00GMT/08:00EST. Sources after the European close suggested OPEC+ is poised to cool down the oil market with the return of production, with Saudi said to still be considering how to phase out a voluntary cut. The JMMC will today review the JTC’s findings and make a recommendation for tomorrow’s decision-making OPEC+ meeting. “So far all signs point to a gradual easing of the cuts”, suggests Energy Intel.
- JTC FINDINGS: Both the base and alternative cases reviewed by the JTC point to OPEC+ production increasing by 1.4mln BPD in April, followed by 500k BPD and 400k BPD for May and June respectively, according to Energy Intel, and in-fitting with Saudi’s desire for a phased approach.
- JTC COMMENTARY: Reports noted that the panel said the recent oil price recovery may be caused more by financial players rather than improvements in physical fundamentals and that upcoming seasonal refinery maintenance will reduce crude runs during Q2 in many parts of the world. The panel also suggested widening backwardation of major benchmark crudes and increasing net-long positions in the financial markets, while it is to closely monitor the price structure of key petroleum products, some of which are still in contango. Furthermore, calling for “cautious optimism” due to the underlying uncertainties in the physical markets and macro sentiment, including risks from more transmissible and contagious COVID-19 mutations that are still on the rise. As is typically the case, the JTC made no recommendation for oil output decision for the upcoming OPEC+ meeting
- ROOM TO MANOEUVRE: So far only around 650k BPD of oil has been returned to the market since the December meeting – where the group decided to ease curbs by 500k BPD per month until the 2mln BPD target is hit. As such, excluding Saudi’s 1mln BPD unilateral cut, a 1.35mln BPD void remains to be filled under the earlier deal.
- LOOKING AHEAD: Market expectations are now more skewed towards the return of OPEC+ supply. Oil ministers and delegates have also been telegraphing optimism for H2-2021 against the backdrop of mass vaccination. Thus, focus turns to sentiment among producers alongside the pace and scale of action; including Saudi’s extra cut.