OPEC+ meeting part 2 -Rystad Energy's take

The OPEC+ meeting restarted today and the market is in for surprises.

Here is Rystad Energy’s first take to help you digest the first leaked reports, by Bjornar Tonhaugen:

No wonder oil prices are now rising. Saudi Arabia’s plan shocked the restarted OPEC+ meeting today, proposing better terms than most bulls could hope for.

A proposed unilateral cut by Saudi Arabia from February is a groundbreaking statement that shows the oil giant is not only ready to bite the bullet and keep taps tight, but it also recognizes the short-term demand risk and is ready to protect its export prices by tightening supply.

However, it is indeed quite shocking that Riyadh is proposing to cut its output, as it could effectively mean that is willing to forego market share.

The Saudis are also risking to lose credibility to their harsh rhetoric in their one-for-all, all-for-one mantra since the historic deal was struck back in Easter of 2020..

On the other hand, offering to cut output could also signal that the Saudi's are quite well-informed about the health status of demand in the market and want to tread carefully in not distorting the price recovery trend the market is on.

It may signal also that the Saudis fear the February and March period when refiners typically enter maintenance, and would like to avoid an oversupplied crude market.

Compared to the Saudi initiative, Russia seems to be in a different game. It’s hard to see a deal where non-compliant Russia increases its output, while by-the-rules player Saudi Arabia makes up for it.

The move could be an effort by the Saudis to take a hit in order to convince Russia to not boost output further.

What is noteworthy is that the Saudis are going against their previous official stance, by offering to shoulder a cut burden unilaterally - succumbing to the preference of the other strong coalition members such as Russia and the UAE to increase market share - while still being shielded from a possible negative oil price reaction.

If the proposal gets confirmed and the Saudis cut output, prices are definitely in for better days in the first quarter of 2021.

Read the latest issue of the OGV Energy magazine HERE.