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Oil largely unchanged on mixed IEA signals and anticipation of OPEC+ meeting

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Oilfield Technology,

Oil prices are fluctuating around Tuesday’s levels today on mixed signals from the IEA and on anticipation of the OPEC+ upcoming meeting.

Rystad Energy’s daily market comment from Head of Oil Markets Bjornar Tonhaugen:

"After giving prices a small boost yesterday, oil traders are now in a “wait-and-see” situation, looking for definite signals to take the right course of action.

The IEA did not help much today, as it provided mixed signals for the market.

From one side kept its oil demand outlook at about the same levels for 2020 and 2021, despite Covid-19’s persistence, a positive indication. Also positive is the direction of floating storage, which IEA said fell by a third last month.

In a normal market, such a forecast would provide stability and boost confidence that stocks are used and emptied in a recovering market.

However, such is not the case. IEA also pointed to a coming surge in Libyan supplies, with production reaching 700 000 already in December.

These are supplies the market hoped to live without for some time, but has to now include in its calculations. IEA warned in particular that an uptick in supply will be very difficult to be absorbed by demand and producers may struggle to balance the market.

Some producers have tried exactly that this year and they are meeting very shortly, in the upcoming OPEC+ meetings in the next few days, which is another reason the oil prices are waiting before registering a definite swing in either direction.

The next price impetus may come from OPEC+ next week at the JMMC meeting on Monday, with the alliance’s getting increasingly impatient.

The Saudi Crown Prince and President Putin’s talk on Tuesday confirm this growing impatience with countries in the agreement not living up to their end of the pact.

But Russia itself, although having made the largest voluntary oil supply cut in history, have under-complied by around 150,000 bpd during the first five months of the monster cut deal, while Saudi Arabia have over-complied by a similar amount.

It’s no surprise to us that doubts are growing in the market about the scheduled OPEC+ cut tapering of 2 million bpd from Jan-21 due to be decided on December 1st.

Libya has resumed exports, Iran continues to increase crude exports taunting the US sanctions regime, while products demand is stagnating and crude demand to produce these oil products remains quite soft.

In turn, crude demand from refineries is being held back by weak margins and stagnating products demand, concentrated in jet fuel still.

Runs have also been held back recently by unusually high US GoM hurricane activity and now also by the “normal maintenance season” in October.

The question is to what extent will we see additional run cuts compared to what is incorporated in the expected refinery run forecasts for October and November.

Feet-dragging on stimulus negotiations in the US Congress doesn’t help either.

Unless OPEC+ makes another landmark intervention and adjusts its oil output further, we believe that the next definite long-lasting price signal will come from the demand side.

Robust non-transportation demand could lead to upward revisions in short-term demand, while the risk of an additional downturn with new restrictions to regional transportation still exists and can of course depress demand instead."

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Upstream news OPEC news Oil price news Oil & gas news