Oil largely unchanged as traders brace for OPEC+ negotiations

"There are two ways of looking at Monday’s OPEC developments and traders can see the glass either half full or half empty, a balance that keeps prices moving only marginally today, at levels largely flat.

The bearish way of looking at things is that OPEC+ is far from settled on postponing its planned production increase from January, a development that the market thought as almost ‘a done deal’ prior to Monday’s meeting.

The bullish way of eyeing this is capitalising on the fact that Tuesday’s OPEC+ meeting is postponed for a few days. This shows that there is determination from key OPEC+ producers to negotiate and push for a deal to amend the standing agreement and not raise output as planned, to protect prices.

As traders scratch their head on what to make of Monday’s events, prices will not deviate much. But now, everyone is looking at leaked statements and discussions from the ongoing consultations and negotiations between OPEC+ members, prior to the coming meeting.

Any member’s statement that shows a lack of agreement between the alliance could drive prices lower, while consensus hopes could strengthen them.

The OPEC protester members, producers that are unhappy with the inaction from laggards to compensate for their shortfalls, will need to be convinced this time and satisfied and it is not an easy task.

Compliance has been an issue in previous OPEC+ meetings, but since this one now has to decide on a painful continuation of production cuts, the issue is taking the spotlight.

As things stand at the moment, reaching a consensus within OPEC is definitely harder than expected, as the UAE is putting forth conditions to an extension which was difficult for certain members to accept.

The UAE has voiced discord with the agreement in recent weeks, and it seems it is getting back at OPEC after being bad mouthed earlier in autumn by Saudi Arabia for boosting exports above its quota.

Now, an OPEC+ cut extension is no longer a certainty, but still the most likely outcome, albeit with a less unified OPEC.

It is less likely that OPEC+ would now consider a decision that would last any longer than three months, so we expect a three-month extension the most realistic positive scenario under the circumstances.

An optimistic way of looking at OPEC+, however, is that Russia and Saudi Arabia appear to be aligned in their will to extend the cuts. This is powerful and even in the case that an agreement is not reached among all OPEC+ members, it is not out of question that a certain fraction of the alliance may cut its own deal to keep their production stable.

Still, a disagreement is not the desired scenario, and emphasis will be given to bridging the differences among members. If there is a right moment for OPEC to stop being lethargic towards non-compliant members and ask for immediate action, then this is now."

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