OPEC+ Preview: A “More Complex” Meeting On Deck

Submitted by NewsSquawk

OPEC+ producers are likely to maintain the current policy of 400k BPD monthly hikes, according to sources. However, the upcoming meeting will be more complex than the previous confabs given recent/ongoing major events: Russia’s invasion of Ukraine, progress on the Iranian Nuclear Deal, and Brent sustaining above USD 100/bbls.

Looking at where the group stands. OPEC-13 members are in something of a sweet spot with regards to the oil price, not being involved in a war, and as Russian crude looks less attractive. Conversely, the group faces the prospect of Strategic Petroleum Reserve (SPR) releases alongside Iranian oil legally entering the market, which would provide less of an incentive to open the taps beyond the pact. All in all, the path of least resistance is seemingly for OPEC* to continue with the current hike plan whilst stressing flexibility.

RUSSIA-UKRAINE: The threat of energy export sanctions on Russia and the subsequent shortfall other producers must pick up may get discussed. Some have suggested that US officials want to avoid sanctions on Russian energy exports as it’ll further stimulate crude prices. OPEC* delegates cited by Energy Intel believe the risk premium in crude prices (at at around February 25th). was some USD 10-15/bbl. Note, some business channels have been flagging the idea that Saudi Arabia could attempt to rein in Russian aggression with a move similar to the 2020 price war (output surge and OSP slash) – but it may be in Saudi’s best interest to not get involved – for the sake of oil prices, relations with Russia and amid the prospect of additional business arising from potential Russian sanctions.

IRANIAN NUCLEAR DEAL/ UNDER-PRODUCTION: OPEC+ members will also have to discuss the inclusion of Iran in its output quotas given the progress flagged by both sides in recent days on the revival of the nuclear deal – albeit some sticking points remain. An Iranian official said if US sanctions are lifted. Iran could boost its oil output to 4mln BPD from 2.5mln in about 3 months, according to Energy Intel. Despite sanctions. Argus estimated that Iran exported 789k BPD of crude in January (vs 705k 04 2020 average vs 2.3mln BPD pre-sanction exports). Meanwhile OPEC itself is facing difficulties with some producers lagging behind their monthly quotas – namely Nigeria and Angola.

OIL PRICES/JTC: The Russia-Ukraine developments aided Brent prices to regain a footing above USD 100/bbl for the first time since 2014. and despite the external pressure from consumers such as the US and India. OPEC* has remained reluctant to go beyond their pact thus far. The rise in oil prices has also lifted the global inflationary picture – thus leading to talks of further SPR releases to stem prices. WSJ sources reported that IEA members may agree to a release of 70mln bbl from stockpiles this week.