OPEC+ and Alaska Sale May Offer Market Preview
The outcome of a meeting of the 23-member OPEC+ alliance, along with the level of participation in a U.S. lease sale, represent major items to watch this week in the oil and gas markets. Keep reading to find out why.
Barani Krishnan, Senior Commodities Analyst, Investing.com: Come Jan. 4, the Organization of the Petroleum Exporting Countries and its allies will meet to consider raising global production of crude by half a million (barrels) per day for the second time in a month.
When the 13-member Saudi-led OPEC and its 10 allies led by Russia agreed to hike output by 500,000 barrels per day (bpd) the first time in December, the market actually lauded the group’s discipline for adding less than the 1 to 2 million bpd forecast. Crude prices actually rose after the OPEC+ maneuver. This time around, the market might not be as kind.
To add to the consternation of traders: The request is coming from Russia, which was responsible for escalating the price crash in April by insisting on raising production just as COVID-19 lockdowns were gathering pace around the world.
Phil Kangas, US Partner-in-Charge, Energy Advisor, Natural Resources and Mining, Grant Thornton LLP: A key development to watch will be how OPEC+ stands by its plans for 500,000 bpd production decision for January, and adjusts plans for February, based on forecasted worldwide demand for oil consumption. Also to watch will be Iran’s production plans, as they have already announced intentions for a substantial increase in production. Lockdowns underway across Europe and Asia, which are seeing surging COVID cases, will weigh on decision-makers. Demands will be tied to the breadth and severity of a post-holiday surge, anticipated two weeks after the Christmas holiday.
The extent of industry participation in this week’s sale of oil and gas leases in Alaska’s Coastal Plains will be something to watch. On Jan. 6, the Department of the Interior’s Bureau of Land Management (BLM) is scheduled to conduct a video livestream sale of oil and gas leases in the Arctic National Wildlife Refuge (ANWR). Authorized by the Tax Cuts and Jobs Act of 2017, the secretary of the interior is to conduct at least two Coastal Plain lease sales, each covering at least 400,000 acres – the first by Dec. 2021 and the second by Dec. 2024. In the current administration’s haste to conduct the sale, several environmental review steps were shortened or eliminated, placing these sales at risk of judicial intervention. President-elect Biden has long opposed oil and gas development in ANWR and has now identified his energy and climate team, likely also opposed to exploration in these areas.
While the BLM sale moves forward this week, the risks associated with sustained governmental support – and forecasted lower demand for oil in 2021 – may limit participation. The results may present a bellwether for future policy and economic friction that will define the years ahead for oil and gas.