Oil: OPEC likely to delay planned increase in output quotas

The OPEC+ alliance is faced with a crucial decision as the market enters a critical phase of its recovery from the depths of the global pandemic. The supply cuts that the group implemented in Q2 have gone a huge way to stabilising the market. After bottoming out around $20/bbl in April, Brent crude has more than doubled to over $40/bbl within two months. Strategists at ANZ Bank expect the OPEC+ will have no choice but to delay the increase of quotas by a month or two at its meeting on December 1.

Key quotes

“The supply cuts that the group implemented in Q2 have gone a huge way to stabilising the market. However, a resurgence in COVID-19 cases in Europe and North America has stopped the recovery in demand in its tracks. Despite governments refraining from implementing stringent lockdown measures, mobility data show traffic levels, and subsequently demand, falling.”

“We have lowered our forecast for demand for Q4 2020 by 1.0mb/d from last month. As such, we expect the market deficit in Q4 2020 to shrink slightly. However, if OPEC sticks with its plans to increase output in Q1 2021, the market will likely move back into a small surplus.”

“OPEC+ is likely to keep an open mind over the coming weeks, focusing on adhering to current quotas as much as possible. However, if demand continues to trend the way it has been over the past month, we believe it will have no choice but to delay the increase in quotas in 2021. We now see the most likely scenario being a delay of a month or two to the increase of quotas, at its meeting on December 1.”

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