Takeaway: Announcement of Compressed OPEC Schedule Hints of Developing Consensus

VIENNA, AUSTRIA, December 3, 2019 - Hedgeye’s Senior Energy Policy Analyst Joe McMonigle in Vienna this week for the OPEC+ December 5 and 6 Meetings is publishing daily “OPEC Notes” for clients in addition to his longer more in-depth client notes. Today’s edition of OPEC Notes is below.

Drumbeat for Deeper Cuts Gets Louder – Raising Odds to 55 Percent

Last week we told Hedgeye clients not to dismiss a potential OPEC decision for deeper cuts, and now here on the ground in Vienna, we are starting to see the groundwork laid for a deeper cuts scenario.  Several news reports this week are now focusing on deeper cuts.  In our view, cutting production deeper than the current 1.2 million barrels per day (b/d) may be as much as the previous OPEC+ deal of 1.8 million barrels per day (b/d). We believe deeper cuts may be implemented for 1H2020 to address oversupply in the first half of the year. OPEC today released the schedule for the December 5 & 6 meetings. We noted that the OPEC meeting, that is usually a full day, now starts at 3 pm Vienna time. This compressed schedule suggests to us that there may be a developing consensus among OPEC ministers regarding deeper cuts (or a late night in Vienna). President Trump’s announcement today that a China trade deal may not happen until after the November 2020 election adds more impetus for OPEC to take bolder action. As a result, we are raising the odds for deeper cuts from 40 percent (last week) to 55 percent today. 

OPEC’s Latam Moves with Ecuador & Brazil 

Ecuador was slated to depart from the OPEC group after this year but Platts reported yesterday that talks were continuing with the new government to stay on as an OPEC member. This would be a significant accomplishment for OPEC to keep Ecuador in the fold. OPEC’s general counsel is from Ecuador and no doubt is helping to lead the discussions. Also, Brazil continues to flirt with OPEC after President Jair Bolsonaro said in Saudi Arabia last month that he would consider joining the group. Despite rebuffs from Brazil’s economic minister on the OPEC idea, Brazil will be in Vienna this week in an observer status. While it is still probably a long shot for Brazil to join OPEC or the OPEC+ group, either scenario would supercharge OPEC’s role in oil market management and be bullish for oil prices.

OPEC NOTES: Drumbeat for Deeper Cuts for 1H2020 - OPEC Options Scorecard Dec 3