Gloom continues to cloud crude oil markets.
With a COVID-19 vaccine unlikely to ride to the rescue of the global oil market for some time, the combination of weaker demand and rising oil supply provides a difficult backdrop to the meeting of the Organization of Petroleum Exporting Countries (OPEC) and their allies later this month, the International Energy Agency said in its November Oil Market Report.
What could OPEC and its allies do in the circumstances? Would they go ahead with already-announced increases in output for January 2021?
That’s now doubtful. The emerging scenario also puts the viability of OPEC as an effective organization in question.
With the second wave of the pandemic underway, the organization has also lowered its 2020 oil demand forecast by 9.8 million barrels per day (bpd), OPEC secretary-general Mohammad Sanusi Barkindo said in his statement at the joint ministerial monitoring committee of OPEC on Nov. 17. OPEC has also lowered its expected growth for 2021 to 6.2 million bpd from 6.5 million bpd projected earlier.
With the crisis continuing, the OPEC joint technical committee suggests the organization consider delaying its planned output boost by three to six months.
Media quoted OPEC sources as saying some members support extending the production cuts even beyond that timeline. Others favour even more drastic measures, including deeper cuts.
But this could be challenging.
Members like Iraq have signalled they may not be on board with an agreement unless it garners unanimous support from all members.
Libya, meanwhile, is demanding it remain exempt from any production cut regimen until its production stabilizes at around 1.7 million bpd. Libyan output is rising and has surpassed 1.25 million bpd. This has added nearly one million bpd into the mix at a time when OPEC-Plus, which includes other producers, is desperately trying to remove barrels from the market.
While the markets face this stubborn glut, OPEC faces an existential threat. Tough market conditions are endangering the very fabric of the group. The United Arab Emirates is understood to be holding internal discussions about its position in OPEC-Plus, Energy Intelligence reported last week.
In a sign of the growing unease, the U.A.E. told the monitoring committee that all members should meet their output cut commitments in full before agreeing to changes or extension of the current pact, Energy Intel quoted an OPEC delegate as saying.
Some U.A.E. officials have reportedly started privately asking hard questions about whether OPEC membership remains in the country’s longer-term interests. The question needs to be viewed from a perspective of the need to monetize oil resources and avoid stranding assets.
Energy Intelligence says some in the U.A.E. also believe current OPEC-Plus practices serve to benefit competitors outside the group, such as United States shale oil producers.
The need to monetize assets quickly is also making others look at the issue. A Saudi study in 2018 by the Riyadh-based King Abdullah Petroleum Studies and Research Center (KAPSARC) caused a stir when it asked similar questions, looking at short- and medium-term oil market scenarios if OPEC were disbanded.
However, KAPSARC president Adam Sieminski later told Energy Intelligence that the study was neither directed by the state nor reflective of official Saudi thinking. He said it was simply an exercise of thinking outside the box.
But the study was interesting.
The very future of the OPEC as an organization, and an effective one, seems under focus.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris.