Oil falls on OPEC+ decision uncertainty

"That’s what happens when the market prices in its hopes before actual agreements are made. Oil prices are falling today, as news broke that there is no clear consensus yet among the OPEC+ alliance on how to proceed from January.

The group is scheduled to bring back curtailed production from January and, although rumours have it that an extension of current output levels is possible instead, the economies of many of its members are tied to oil sales and are currently under pressure.

Whoever thought - and already gambled - that postponing the planned production increase was a done deal, is now biting nails to the flesh.

In a group as large as OPEC+, it is never easy, or granted, that difficult decisions will secure consensus among members. It was difficult for the alliance to agree on the existing deal in the beginning of the crisis and it will not be easy either to agree to bite the bullet again and deepen the deal’s impact.

Yet, although the UAE and Kazakhstan appear to have dissented, it is a negotiation table, and it is still very early to conclude on what’s coming. OPEC+ has enough time to put data rationally on the table and evaluate the situation.

Looking at the demand outlook, postponing the increase is the reasonable choice to support oil prices and many members support this, an initial disagreement is not necessarily a deal-breaker.

Everyone in the group understands that keeping the current deal unchanged will mean oil prices are guaranteed to decline due to a coming production surplus.

Adding to the UAE and Kazakhstan reported objections, cash-strapped Iraq reportedly has not officially sought exemption from cuts in 2021 despite speculation it might.

As things are, going into the formal meeting with all OPEC members today, the market is less sure now that a deal to extend the current cuts will be struck. So today, on Brent’s January 2021 futures contract’s final trading day, there may be blood.

At least there will be volatility, as traders will position themselves for the end-result from OPEC’s formal meeting. However, even if OPEC reaches a consensus today, there’s one more hurdle to pass; Russia and the other Non-OPEC countries must also be convinced tomorrow.

Despite the pronounced decline today, the oil price move down could have been deeper. Expectations that Covid-19 vaccines will be rolled out in the US by year-end are providing a soft cushion for falling prices."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/30112020/oil-falls-on-opec-decision-uncertainty/