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3 possible scenarios coming out of OPEC+

[highalpha1]

As the OPEC+ meetings did not yield an outcome this week and further deliberations are scheduled for Monday, here are the three possible outcomes that I can think might emerge. Before proceeding,

Before proceeding, I will point out the central issue: 'Declaration of Cooperation' (DOC). The DOC is an OPEC+ agreement signed in April 2020. The DOC was originally slated to last for two years -- i.e., it is set to expire in April 2022. During the current OPEC+ meeting, OPEC+ members (with the exception of UAE) voted to extend the agreement by nine months to December 2022. UAE is resisting as they have developed significant spare capacity, which they would like to utilize and not be handcuffed by current production limits to the end of 2022.

So, what can happen on Monday? Here are the scenarios, I can think of:

Scenario 1: A deal is struck to add barrels to the market from August
Should the parties find a compromise to push through the current impasse by somehow placating the UAE and extending the DOC to December 2022, and 400,000 barrels are added each month from August to December, oil prices should be stable at around these levels.

Scenario 2: A deal is not struck and OPEC defaults to its current DOC agreement
Should OPEC+ not be able to find a solution with which the UAE is satisfied for adding new barrels from August onwards -- and therefore consnesus is not reached -- then OPEC+ defaults to the current DOC. This would mean that no new barrels come online from OPEC+. On the short term at least, this could be very bullish for oil prices as demand would continue to rise and supply would remain steady at current levels. This scenario would be significant upward pressure on oil prices.

Scenario 3: A deal is not struck and OPEC+ blows up the current DOC
This is a highly unlikely in my opinion, and would involve OPEC+ members all walking away from the current DOC and drilling at full capacity, which would ultimately tank oil prices.

Finally, if the Saudi oil minister has proved anything in the past year, it is that he is incredibly astute and can come up with innovative solutions forward. He may be planning a solution that is not captured by any of these three scenarios. We shall see what happens on Monday. GLTA.

[Iluvyellowsnow]

Scenario 4: Opec+ reverts back to the original expiry date of the pact (i.e. April 2022). The Saudi's placate the UAE by giving up some of their own quota (100k-200k) until a new deal can be negotiated in April 2022.. The UAE has a problem with the pact being extended until the end of 2022. They wanted to renegotiate their baseline by the agreed upon April 2021 date. In the past and in order

[highalpha1]

@iluvyellowsnow: OPEC+ can revert back to the current DOC, but that is captured in Scenario 2. This would be very bullish for oil as that would mean no new barrels on the market from OPEC+. Regarding Scenario 3, I think you are misguided in conflating what might happen this coming week and what happened in March 2020. The key difference is that in March 2020, there was no deal in place. Members

[Iluvyellowsnow]

I guess we'll have to agree to disagree on all members abiding by the DOC. If there is no agreement I think they will eventually start to put more barrels on the market instead of keeping the status quo. Russia wanted to increase capacity and they're not going stay on the sidelines for too long while the world demands more oil. Once any member of the alliance starts to increase capacity on

[highalpha1]

@Iluvyellowsnow: If there is no agreement as to bringing on additional barrels starting August, the default is returning to the DOC, which involves no additional barrels.  As for your claim that OPEC+ members can bring upon spare capacity at will, this is simply inaccurate. Of the 23 OPEC+ countries only a small handful (six) countries that have any spare capacity available to them (Saudi