Oil calms before the storm

"Oil prices are largely unchanged today as bearish new of a projected crude stocks build-up in the US got matched by bullish news of the first approval of a Covid-19 vaccine in the UK.

Either of these two reasons could tip the scale towards one direction but their combined effect is more muted.

But even so, traders would not take huge gambles today, as they are waiting for the final verdict of Thursday’s OPEC+ meeting. What the alliance decided to do from January could shake markets and no trader wants to be too quick today before a definite indication.

If OPEC+ decides to delay its planned oil output increase, it will provide a great relief to the market and that is bound to definitely help prices rise. Although trader confidence priced in such a decision way before the meeting, there is still room for euphoria if the hopes get met with action. Some of the earlier gains are also now reversed after Monday’s first meeting turbulence, so a positive effect on prices can be even more profound if OPEC+ does what’s expected and finds a consensus to keep production stable.

Should the current differences weight heavily on the negotiation table and the alliance is forced to increase production by about 1.9 million bpd as planned, we can expect the market to get a serious hit and prices to become a punchbag again.

As there is a lot at stake, the OPEC+ decision does not look like it will go unnoticed, the effect will not be muted. Traders expect it either very positive or the opposite. And when stakes are so high, it is dangerous to move prices much ahead of such decisions, even on the news of the Pfizer vaccine approval in the US.

The market has understood that a vaccine approval, despite being an obviously positive development, will not help oil demand on the short term. It is OPEC+ and supply curtailments that will.

A vaccine roll-out will be done selectively in the beginning, applied to the most vulnerable of groups before the general population. Lockdowns will persist for some time as it will take months to get a sufficient amount of people vaccinated for road and flight traffic numbers to recover.

Looking at the bigger picture, the real action in the market will be tomorrow and prices may face volatility from early on, as first reports of the meetings discussions surface. Traders will be looking for officials’ statements and leaks of disagreements -or a consensus.

And as disagreements get resolved or a consensus gets back in trouble it will not be out of question to see prices moving from gains to losses and back. Volatility is the word tomorrow and that’s why today’s muted price reaction is like the calm before the storm."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/02122020/oil-calms-before-the-storm/