By Ann Koh and Alex Longley
The OPEC+ deal offers something to those members concerned about the fragility of the market, and also to nations wanting to pump more to take advantage of higher prices. Oil has rallied recently on optimism fuel demand will start to rebound once Covid-19 vaccines are widely distributed. At the same time, the return of consumption in Asia continues to outpace the rest of the world, boosting hopes a glut built up earlier in the year can clear.
See also: OPEC+ Show of Unity on Output Deal Welcomed by Oil Analysts
“Asian demand is absolutely roofing right now,” Amrita Sen, co-founder of consultant Energy Aspects Ltd,. said in a Bloomberg TV interview. “If this momentum continues, we could actually see the oversupply disappear a lot earlier than what we’re expecting.”
With OPEC+ now set to meet monthly to manage further supply additions, the group will likely become increasingly dependent on price-driven signals like timespreads, Goldman Sachs Group Inc. analysts wrote in a report. The recent rally in the market structure has been driven by financial flows, producer hedging and refinery purchases in Asia, they said.
Analysts broadly welcomed the show of unity from the group. Most said that the modest supply increase will likely keep the market in deficit and Citigroup Inc. revised its price forecasts higher. Still, some think the move to lift output could challenge the group’s ability to keep production reined in.
“We believe that there is a real risk that compliance could break down as the quota-challenged countries seek to maximize profits from a market buoyed by vaccine optimism and free ride on the output adjustments made by others,” RBC analysts including Helima Croft wrote in a report.