Last week’s Opec+ agreement to deepen the coalition’s production cuts in 1Q 2020 (MEES, 6 December) paves the way for an easing of the projected early-year supply glut. This is of course dependent on compliance, over which big questions remain, while fundamentals point to a severe need to extend the cuts beyond 31 March. As for how long any extension would need to be, that's less clear.
MEES estimates that full compliance from the Opec cohort would bring the group’s output down to around 29.22mn b/d – 330,000 b/d less than the secondary sources production estimate of 29.55mn b/d for November. Plug this into the IEA’s projections for 2020 and you are left with a sizeable 680,000 b/d surplus in Q1. The IEA numbers indicate a 910,000 b/d Q2 surplus even should the cuts remain in force (see chart 1), implying that when Opec+ meets again on 6 March, it will need to extend the agreement. (CONTINUED - 724 WORDS)