Saturday 5 December 2020

Column: OPEC+ to boost output as oil market tightens - John Kemp | Reuters

Column: OPEC+ to boost output as oil market tightens - John Kemp | Reuters

OPEC and its partners have agreed to raise their collective production by 0.5 million barrels per day (bpd) in January, with output to be reviewed and adjusted at monthly intervals thereafter.

The increase is much smaller than the 2 million bpd scheduled last April, but marks a significant shift from the start of November, when the group seemed poised to leave output unchanged for another three months.

The shift responds to news of successful coronavirus vaccine trials, which could lead to a rapid immunisation programme and resumption of more normal business activity and international air travel.

Brent futures prices have already climbed by more than $11 per barrel (30%) since the start of November as traders anticipate a faster recovery in oil consumption and a sharper drawdown in global inventories.

And Brent’s six-month calendar spread has moved into backwardation of more than $0.40 per barrel, from a contango of $2.50 at the start of November, as traders expect a larger production-consumption deficit in 2021.

Spreads for every month next year have moved into backwardation, which will prompt traders and refiners to empty tank farms of discretionary inventories, keeping only the minimum needed to maintain reliable operations.

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