OPEC+ sees oil cut extension curbing 2021 rise in oil stocks

DUBAI/LONDON/MOSCOW: OPEC and its allies see oil inventories declining further in 2021 should producers extend supply curbs for three months or more, a confidential document seen by Reuters shows, supporting the case for a tighter policy on crude output next year.

The OPEC+ producer group, for now, is due to raise output by 2 million barrels per day (bpd) in January, or about 2% of global consumption, as part of an earlier agreement to steadily ease record supply cuts that were implemented this year.

But weakening demand has prompted OPEC+, which groups the Organization of the Petroleum Exporting Countries, Russia and others, to consider delaying the increase.

The report by an OPEC+ panel, known as the Joint Technical Committee (JTC), said the rebound in global oil demand next year would be less than previously thought as the coronavirus second wave continues.

"For 2021, oil demand is expected to grow by 6.2 million barrels per day, year on year, representing a downward revision of 0.3 million barrels per day compared to last month's assessment," the report said.

The level of oil inventories in industrialised OECD countries relative to their five-year average is a key benchmark for OPEC+. Stocks have soared in 2020 as demand collapsed due to the pandemic.

According to one scenario in the report, if oil cuts were extended to the end of March 2021, OECD commercial inventories will decline to stand at 73 million barrels above the five-year average in 2021.

If the reduction pact was extended to the end of June, OECD stocks would fall and stand only 21 million barrels above the five-year average next year, according to another scenario.

The JTC met virtually on Monday before another panel, the Joint Ministerial Monitoring Committee (JMMC), meets on Tuesday. The meeting of the JMMC, which can recommend policy steps to OPEC+, is scheduled to start at 1300 GMT.

SUPPORT FOR EXTENSION

OPEC+ sources said on Monday that one option gaining support was to keep existing curbs of 7.7 million bpd for a further three to six months, rather than tapering the cut to 5.7 million bpd in January.

OECD oil stocks declined in September 2020 but still stood 212 million barrels above the five-year average, according to OPEC's most recent publicly released information.

The JTC report outlined a third set of circumstances in which oil demand is assumed to be weaker, in which OECD stocks would rise to stand 470 million barrels above the five-year average by the end of 2021. It called this the alternative scenario.

Under the report's base case scenario, OECD stocks would drop and remain 125 million barrels above the five-year average at the end of 2021, still a sizeable decline from September's level.

The JTC considered both extensions to existing cuts of three and six months, according to the report.

OPEC+ will have a full meeting on Nov. 30 and Dec. 1 to decide output policy for 2021.