Week Ahead: OPEC meets to discuss production cut extensions & US nonfarm payrolls released

OPEC and allies gather this week to discuss how best to proceed in what has been a very challenging year for oil. How will this affect energy markets moving forward? US Nonfarm Payroll data for November is also revealed, showcasing how many, if any, new jobs have entered the US economy last month.

OPEC meetings

The fate of the 2021 oil markets is in OPEC’s hands as the 180th OPEC Conference takes place on Monday 30th November.

The 12th OPEC and non-OPEC Ministerial Meeting follows on Tuesday, December 1st.

Production cut extensions are likely to dominate the agenda for this latest round of talks. OPEC has already lowered production by record levels in 2020 and was hoping to ease levels back up in January 2021.

This now seems unlikely. Instead, Reuters reports that the group and its allies will probably vote to extend its production cuts well into the new year.

“The OPEC+ ministers will probably agree to extend current production for the first quarter of 2021,” an OPEC delegate told Reuters regarding policy for next year.

“There are still some challenges on demand, but I hope the vaccine will change the picture soon,” he said.

January’s goal was to ease production output upward by 2 million barrels per day, which corresponds to roughly 2% of global oil consumption. OPEC members are currently cutting 7.7m bpd. The planned January cuts would have taken daily output volumes up to 5.7m bpd.

While the news of various vaccines having very high levels of effectiveness has given a glimmer of hope to oil producers, it is unlikely that oil demand will really pick up until the second half of 2021. This due to mass vaccination taking a while to fully implement, despite the fact vaccines may gain emergency approval and quick roll out in the coming months.

For now, demand remains suppressed thanks to the pandemic’s second wave.

Another factor OPEC will have to contend with is conformity. While a pre-conference meeting on 17th November confirmed full member conformity with OPEC cuts, not all member states are receptive.

Libya, for instance, has said it will not commit to further cuts until its own production volumes reach 1.7m bpd. Currently, Libyan output measures 1.25m bpd, after the reopening of one of its largest oilfields. Iraq, too, is already non-compliant and is forecast to stay that way.

That may become a major sticking point in next week’s negotiations.

What will this mean for oil prices? It’s difficult to say at this point. Vaccine news has already put a bid on prices. Crude prices rose to their highest since March last week, breaking free from a multi-month range with Brent north of $48 and WTI rallying to $46.

US Nonfarm Payrolls

Friday, December 4th will see the release of November’s US Nonfarm Payrolls (NFP) data. This is an indicator of how many jobs have entered or exited the US economy that month.

Has November continued the upward swing seen across the previous two months?

NFP rose 638,000 in October, while in September the number of new jobs rose by 672,000, revised from 661,000, exceeding the market expectation of 600,000.

Despite this, the pandemic does not seem to be under control in the US. More than a million new cases, and 85,000 new hospital admissions, were reported across the country last week.

But the US is keen to keep businesses and the economy open. President-Elect Joe Biden has been trying to avoid the phrase “lockdown” – a possible indicator of his administration’s intention to keep regulations light once he takes office in January 2021.

Dr Vivek Murthy, a former U.S. surgeon general who is a top health advisor to President-elect Joe Biden, has described a full national lockdown as a “last resort”, showing further US attitudes to righter restrictions.

Can the US take the pandemic heat?

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