Goldman questions the future and purpose of OPEC+ ahead of a critical meeting

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Saudi Minister of Energy Abdulaziz bin Salman speaks during a media briefing at the King Abdullah Petroleum Studies and Research Center (KAPSARC) in Riyadh for a press conference, on November 18, 2020.

FAYEZ NURELDINE | AFP | Getty Images

LONDON — The future of oil producer group OPEC+ has been called into question by analysts at Goldman Sachs, as the alliance prepares to secure a new mandate on output curbs.

OPEC+, a group composed of some of the world’s largest crude producers, is scheduled to begin a two-day meeting Monday to discuss the next phase of its oil production policy.

The virtual gathering will likely see OPEC and its non-OPEC partners discuss whether to extend production cuts into next year in an effort to support prices, amid weak demand and a surge in coronavirus cases.

“As another OPEC+ meeting nears, uncertainty on the group’s decision is once again rising,” Goldman analysts said in a research note Tuesday.

“Beyond the outcome of just another quota decision, however, there are renewed concerns about the future of the organization.”

Russia and other non-OPEC countries have been working with the 13-member group to prop up oil prices in recent years. The group still exerts considerable influence over world energy markets, although it is no longer recognized as the force it once was.

In April, after days of protracted talks, OPEC+ agreed to the largest single output cut in history. The record cut of 9.7 million barrels per day started on May 1 but was subsequently scaled back to 7.7 million in August and OPEC+ has said it plans further tapering next year.

Earlier this month, Energy Intelligence, citing unnamed United Arab Emirates officials, reported that the country was privately considering its membership of OPEC. UAE Energy Minister Suhail al-Mazrouei has since said in a statement to Reuters that the country remains a committed member of OPEC+.

The speculation came as a surprise to some because of the UAE’s stature within OPEC. It is the group’s third-biggest producer and a close Gulf ally of OPEC kingpin Saudi Arabia.

“These headlines once again call into question the future and purpose of the cartel, compounding on the brief March Saudi-Russia price war and Qatar’s departure from the group last year,” analysts at Goldman said.

It ultimately reflects “the difficult dual mandate that the group is trying to meet: helping rebalance the market after an unprecedented demand shock yet achieving higher revenues and market share medium-term,” the U.S. bank added.

OPEC was not immediately available to comment when contacted by CNBC on Tuesday.

In addition to the Saudi-Russian price war and Qatar’s departure, OPEC+ has had to navigate a historic collapse in oil prices and an unprecedented fuel demand shock.

‘Anything but plain sailing’

Goldman said it expects OPEC+ to delay its planned 2 million barrels per day January production ramp-up for three months, citing coordinated measures to curtail output as “the optimal near-term action.”

It expects international benchmark Brent crude prices to average $47 a barrel if production curbs are extended.

Brent crude futures traded at $46.45 a barrel on Tuesday, up around 0.9%, while U.S. West Texas Intermediate futures stood at $43.52, more than 1% higher.

Both oil price contracts settled at their highest level in months in the previous session, after a string of encouraging vaccine developments in recent weeks boosted hopes of a demand recovery in 2021.

Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman Al-Saud and Russia’s Energy Minister Alexander Novak are seen at the beginning of an OPEC and NON-OPEC meeting in Vienna, Austria December 6, 2019.

Leonhard Foeger | Reuters

Brent gained 2.4% on Monday to close at $46.06, its highest level since May 3. Meanwhile, WTI closed at $43.06 on Monday, up 1.5% for the session, notching its highest settle since Aug. 26. Both oil price contracts remain in bear market territory, however, down around 30% year-to-date.

Tamas Varga, senior analyst at PVM Oil Associates, said Tuesday that it appears likely the upcoming OPEC+ meeting will be “anything but plain sailing.”

He cited the failure of the group’s Joint Ministerial Monitoring Committee to present a policy recommendation last week, reports the UAE was thought to be considering its OPEC membership, and the “problem child” of Iraq as it continues to lag other members on compliance quotas.

“The consensus is that the producer group will not increase output level for at least three months and will stick to the current quotas,” Varga said.

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