Next Meeting Will Likely Be on March 5-6 As Russia Still Needs Convincing on More Cuts
OPEC’s Joint Technical Committee (JTC) concluded three days of hastily scheduled meetings in Vienna Thursday to evaluate the impacts of the coronavirus on oil markets.
While the JTC announced its recommendation for another 600,000 barrels per day (b/d) in cuts in the second quarter, Russia made it clear that it was still not committed to deeper cuts or the proposal to move the March 5-6 meeting up to mid-February.
In our view, Russia will come around to supporting deeper cuts but we suspect it will take some time and possible concessions to get them on board.
As a result, we now think the original March 5-6 dates will likely hold for the meeting as one concession. While an earlier February meeting would have signaled some pre-agreement on cuts, waiting for the March meeting will create some uncertainty and volatility about deeper OPEC+ cuts.
But make no mistake, we are forecasting significant deeper cuts with potentially additional voluntary cuts from Saudi Arabia that will at a minimum put a floor on prices but likely stabilize prices higher in the second quarter.
In December the OPEC+ group agreed to 500,000 b/d in deeper cuts from 1.2 million b/d to 1.7 million b/d. Moreover Saudi Arabia announced a surprise voluntary cut of an additional 400,000 b/d so the total OPEC+ deeper cuts for the first quarter are 2.1 million b/d.
Lastly, it is important note that Libya production is offline by about 1 million barrels a day. It’s unclear how long this physical disruption will continue but we think February production totals will be down significantly as a result.