OPEC+ members to discuss nudging up oil production

Look to raise revenue after demand crash

Just as oil traders were looking to catch their breath, they are staring at another cliff.

On Tuesday, a technical committee of the Organization of the Petroleum Exporting Countries and its allies will start a two-day meeting, which could see the group bringing more oil to the market.

The Joint Ministerial Monitoring Committee (JMMC) will consider whether the 23-nation alliance should maintain 9.6 million barrels of daily output off the market for another month or restore some supplies as originally planned, tapering the cutback to 7.7 million barrels.

Brent futures fell US1 cent to US$43.23 a barrel, while U.S. West Texas Intermediate (WTI) crude rose US5 cents, or 0.1 per cent, to US$40.60.

“Oil started the week with losses as the OPEC-controlled supply is expected to increase from August, while the continuous surge in COVID-19 cases in the U.S. and other countries put the pace of the global demand recovery in doubt,” said Rystad Energy’s oil market analyst Louise Dickson.

“It has been all but a bumpy ride for oil during the last months and the OPEC+ deal on supply has been a pillar for the market. The upcoming OPEC+ meeting this week is now expected, as planned, to make this pillar a bit weaker.”

Traders are also concerned about rising coronavirus cases that’s hurting business confidence.

“Pricing pressures are locked in a holding pattern and will remain so until the coronavirus pandemic is brought under control. Until then, there will continue to be a lack of conviction in upside potential,” Stephen Brennock of oil broker PVM told Reuters.

Citibank, which expects oil prices to remain at an anemic US$45 per barrel over the long term, believes OPEC and its allies will confirm the 2-million bpd pullback in cuts, as they fear losing market share.

“They face competition from U.S. shale, Brazilian deepwater, and Canadian oilsands, as emerging sources of oil market liquidity,” Citibank analyst Ed Morse said in a note. “Having suffered catastrophic reductions in revenue from the price collapse following that demand shock of last spring, they want to use this occasion to boost revenues for the rest of the year, encouraged by the doubling of oil prices since they cut production starting this past May.”

RBC Capital Markets thinks OPEC “is nailing the call on its crude,” although oil stocks remain above 250 million barrels higher than seasonally normal and the lack of draws, despite peak driving season, is concerning heading into the fall.

“Strong Chinese imports and the strategic stockpiling are playing a critical role in facilitating the rebalance, but regional refinery margins, which have turned markedly lower, are slowing runs from teapot refineries. China stockpiled a blistering 640,000 bpd during March and April, and while the current pace of 500,000 bpd remains firm, a slowing rate can disrupt the balance.”

Not every one is feeling bearish. Sanford Bernstein Ltd. analyst Neil Beveridge suggests that oil prices could end up higher by the end of the year as inventories slowly decline.

“For the fourth quarter we believe that the market is facing a serious undersupply which should support a recovery in prices back to US$50 per barrel and above. The key risk is a second wave of COVID-19 which derails a demand recovery.”