OPEC+ ministers warn of continued oil demand fragility

By Grant Smith, Salma El Wardany, Javier Blas and Dina Khrennikova on 11/17/2020

(Bloomberg) --As OPEC+ began talks on whether to postpone January’s oil-production increase, ministers sounded cautious about the strength of global demand.

Saudi Energy Minister Prince Abdulaziz bin Salman said he could see a light at the end of the tunnel thanks to the development of Covid-19 vaccines, but the market had some way to go before getting there. His counterparts from Algeria and Russia talked about bumps in the road and an uncertain winter, adding to the impression that the group is open to considering a delay.

“There has been very good news of possible vaccines against the Covid-19 virus, allowing us to see some glimmer of light at the end of the tunnel,” Prince Abdulaziz said at the opening session of an OPEC+ video conference on Tuesday. “But the good news was counterbalanced by a surge in cases in the second wave of infections.”

The Organization of Petroleum Exporting Countries and its allies are considering whether to postpone a 2 million barrel-a-day production increase scheduled for January by between three and six months. The online talks of the Joint Ministerial Monitoring Committee could make a recommendation, but the final decision won’t come until a full OPEC+ meeting on Nov. 30 to Dec. 1.

In addition to the medical breakthroughs, signs of a strong demand recovery in Asia are giving cause for optimism, said Prince Abdulaziz. Yet he also emphasized the negative impact of another round of lockdowns in Europe and the supply increase from Libya.

“The world has a better understanding of how to fight the pandemic, new restrictions have a milder effect on demand and we see a significant progress in development of vaccines,” said Russian Deputy Prime Minister Alexander Novak. “We need to continue showing commitment to our obligations, taking into account today’s uncertainties and the market situation amid winter demand.”

While crude prices rallied to $45 a barrel in London last week following news of a breakthrough on a Covid-19 vaccine, they remain far lower than most OPEC nations need to cover government spending. There’s also a risk that oil demand will remain depressed for many months during the slow rollout of vaccines.

“There is still a way to go before we reach the other side of the long-awaited pandemic tunnel,” Prince Abdulaziz said.

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