Article content continued
The deal was meant to taper, allowing countries to produce more as demand recovers. But a drawn-out crisis has left them stuck with more than 7 million b/d of crude still offline. They are expected to meet again on January 4 to discuss adding back 500,000 b/d.
Tensions have risen within the group as they weigh renewed lockdowns against a desire to rebuild revenues.
The question of long-term demand is a cloud that hangs over the entire expanded OPEC+ alliance, which has included Russia and other producers since 2016.
Fears of a renewed price war within the group are weighing on sentiment, analysts at RBC Capital Markets argue.
“Market rebalancing remains heavily dependent upon the output management of OPEC+,” RBC said.
The biggest geopolitical shift in 2021 will probably come early for the oil market, as Donald Trump departs the White House. Trump became heavily involved with OPEC decisions, pressuring Saudi Arabia to raise or lower production in return for his support.
President-elect Joe Biden is expected to be less hands-on with the cartel, but he may end up being no less influential. The potential revival of the Iran nuclear deal could result in Tehran adding close to 2 million b/d of crude back to the market if U.S. sanctions ease.
Tensions in some of the weaker oil producers, in Africa, Latin America and other regions, will also be closely watched. All have been hard hit by the drop in oil prices, threatening political stability.
One of the worst sectors of the oil industry in 2020 was refining. Crude was helped by OPEC+ group’s supply management, but refiners have fewer levers to pull when demand crashes. That has meant low margins for much of the year.
Permanent plant shutdowns are widely expected to accelerate in 2021, especially in Europe, with consumption patterns shifting east.
If enough plants close, however, that should ultimately boost margins for those left standing.
© 2020 The Financial Times Ltd