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OPEC+ Compromise

05 January 2021 by jbchevrel

OVV 5-year CDS [-12bp], the widest IG constituent, outperformed today. Crude rallied back to EOY levels [$50 on WTI and $54 on Brent]. Saudi Arabia pledged to voluntarily cut output by an extra 1 million barrels a day from next month, while most of the OPEC+ alliance agreed to hold output steady. The agreement comes after 2 days of talks to curb supply over the next two months, with Saudi Arabia carrying much of the extra burden of the cuts. Other producers will hold supply steady or make a small increase. Russia and Kazakhstan will be allowed to boost output by a combined 75kbd in both February and March. Saudi Arabia’s unilateral cut shows the short-term risk on the demand side. OVV is now headquartered in Denver but was initially in Calgary and is among biggest ops in Canada. On a positive note, the Calgary Herald reported this week that Canada’s oil industry expects that 2021 will be the year of recovery from the downturn caused by the pandemic in 2020, with total investments in Canada’s oil sector expected to increase by +12% annually. Combined investments in oil sands operations and conventional oil and gas production are expected to rise to nearly $21B in 2021, compared to $19B in 2020.