Oil markets are awaiting the results of the “OPEC +” meeting, which is held today, Thursday, to determine the alliance’s policies for production over the year 2021.
On the table of the decisive meeting, the meeting is considering two scenarios that are closest to implementation, the first of which is to extend the current production reduction for several additional months, or to start a gradual easing of cuts.
OPEC + scenarios
Both scenarios support them on the ground, as the first comes while reports are increasing about a relative stability in oil inventories and thus an increase in supply, as well as the impact of the second wave of the Corona pandemic on oil demand.
As for the second scenario, it is supported by optimism that Corona vaccines will have a close impact on global activity, as several major countries are already close to starting the distribution of vaccines produced by multiple companies.
This scenario is also supported by actual steps taken by US oil producers who have already started to increase production, which affects OPEC + efforts to achieve price balance in the market.
The decisive meeting
Earlier this week, the OPEC + talks witnessed an unfortunate round as there was no agreement on a specific scenario.
But today’s meeting is supposed to be decisive and conclude with an agreed plan between all parties.
Bloomberg News Agency quoted an informed source as saying that the consultations are currently focused on gradually easing production cuts over several months, after talks between Russia, Saudi Arabia and the UAE.
It was unclear if this reduction would start from January or be postponed to another month in the first quarter.
The talks were initially focused on maintaining the reduced production levels for another three months beginning in January, but this option faced obstacles.
The OPEC Plus alliance is facing increasing pressure from US shale oil producers, who have already begun to increase production.
In the same context, two OPEC + sources told Reuters that OPEC + is tending to extend oil cuts with a gradual increase in crude production over the coming months.
It was widely expected that OPEC and its allies, under what is known as OPEC +, would extend current production cuts of 7.7 million barrels per day, or 8% of global supplies, until at least March 2021.
But after hopes for a speedy approval of vaccines to prevent the virus resulted in a rise in oil prices at the end of November, some producers began to question the need to tighten oil policy.
“The group is still expected to reach an agreement,” said ING Economics, while an OPEC envoy said, “Things are heading towards a settlement.”
Energy Aspects said, “We realize that initial progress has been made in discussions between OPEC + members today and that ministers are moving closer to a settlement that would break the deadlock.”
Sources said that the options currently range from extending existing policies to proposals to reduce cuts by 0.5 million barrels per day per month, starting from January.
Energy Aspects said it was aware that other options include extending the current cuts to January, then increasing production by one million barrels per day in February and March and by another one million barrels per day in April.
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