2021 will be another busy year for OPEC and its allies with the cartel committing to monthly meetings in order to set production agendas going forward. 2020 was an especially tough twelve months for oil, so OPEC is taking no chances when it comes to setting the agenda for this year. 

Oil trading

At the time of writing, OPEC and allies are in day two of their first 2021 meeting. The goal will be to outline the need for any production changes in February. January’s the month where the stoppers are loosened as OPEC members begin tapering production cuts by 500k bpd. 

On Monday 4th January 2020, the first day of the meeting, Brent and WTI futures had gained 2.4% and 2.0% by 08.30 London GMT, hitting $53.03 and $49.49 per barrel respectively. At the time of writing, prices had retreated to $51.14 and $47.42. 

Fears around risk are characterising OPEC’s meetings this week. Core members and allies are taking a mixed view, as ever, about how to proceed. Russia, for example, is keen to keep bumping up production output to cover losses accrued during the pandemic, which isn’t too surprising given its output has dropped for the first time since 2008. Saudi Arabia, on the other hand, is preaching caution. 

OPEC Secretary General Mohammed Barkindo said on the Sunday prior to Monday’s talks that, even though demand is tipped to rise by 5.9m bpd to 95.9m this year, there’s still major risk in 2021’s first half. 

It makes sense for a more measured approach to further output escalation. 2020 was a year of crushing losses for oil producers and, despite vaccines being rolled out, lockdowns are still here. Flights are grounded. No one is travelling. Will oil demand really be high enough to sustain more oil output? 

The consensus, bar Russia, appears that members are in favour of keeping January’s production volumes into February. We’ll see what happens once a decision is made. It’ll be a matter of convincing Russia that the cautious path is the one to tread. 

Meanwhile, US oil inventories decreased by 6.1% compared with the previous week in its latest report on December 24th, 2020. Inventories stand 11% above the five-year average, standing at 493.5bn barrels.  

Natural gas

Despite a relatively bearish output projected by 15-day weather forecasts being warmer than average, the weather in the Midwest US appears to have shifted towards more seasonal chilly temperatures. This meant natural gas prices grew an encouraging 2% on trading on Monday 4th January.  

With colder temperatures ahead, Refinitiv data estimates natural gas demand, incorporating US exports, would rise to 126.1bn cubic feet per day across the coming week – up from 121.1 bn cubic feet.