Rystad Energy’s opener comment from our Senior Oil Markets Analyst Paola Rodriguez Masiu

It’s that interesting day of the month again! The OPEC+ alliance is meeting today for its monthly get-together, with traders keeping their eyes open for unexpected surprises and also for compliance hints from the group’s naughty laggards.

However, not meaning to disappoint, few surprises are expected today. August’s meeting is likely to be a very uneventful -if not boring for OPEC standards – one.

The organization is likely to spend a lot of time discussing compliance, especially Iraqi one. The group knows very well that they need to "manage perceptions" and will make sure to pass along the message that compliance among the group will continue to remain high, even as they relax cut targets.  

One message is likely to be crystal clear though, and that is ‘no cheating is allowed’ for members that are eager to be undercompliant.

As demand has not recovered as quickly as the alliance initially thought and hoped, there is quite a lot of frustration around OPEC members, especially Saudi Arabia. Despite having managed to pull off the greatest balancing act ever seen by the oil markets, prices are stuck at the mid-$40 range and they will continue to be so for a while.

The demand recovery is expected to slow down now, with oil demand hitting the ceiling at about 91.0 million bpd and not recovering further until winter. The ever present threat of a second wave of covid-19 will make market participants more cautious than optimistic for the time being.

The market is always excited for possible surprises and rumors are always plenty ahead of such meetings.

If you are looking for a return to deeper production cuts however, ease your expectations this time. OPEC is unlikely to change its policy now given the high level of uncertainty and they will most likely concentrate in compliance of current cuts.

It would be a jaw-dropping surprise to the market if OPEC+ introduces additional cuts now, prices don't really warrant them outright as they are staying steady despite bearish demand macro news.

Summer days are long and so are OPEC+ meetings however so it we are looking forward to seeing what officials will say today. One thing is for sure though, there is a plan, spelt out very clearly since the deal was sealed months ago. It was not an easy deal to seal, so nobody really wants surprises. But… we are now in a different market. A frustrated market that sees a second wave of Covid-19 nearly fully blown, hitting the oil demand recovery to an extent the alliance was not expecting months ago, And this frustration is something to look at today. How members deal with the second wave of the pandemic. It’s such statements that will give hints on how OPEC+ will move in the future.

Last but not least, don’t forget that shut-in production is returning from other producers outside the alliance. The US for example is bringing nearly all of its shut output back already by the end of August. Not a welcomed move by OPEC+, which is left alone in taking the responsibility of balancing the market and saving it from catastrophic oversupply. Its biggest producers would like to see more of their output available under the current – healthier – prices, but are left to carry the weight of balancing the market.

This article does not necessarily reflect the opinion of the AJOT editorial board or Fleur de lis Publishing, Inc. and its owners.