Oil Video 01.12.20.
OPEC+ Failed To Reach Consensus And Postponed The Second Day Of The Meeting To December 3
OPEC+ decided to postpone the second day of its meeting to December 3 so oil traders will have to spend several days waiting for the final outcome.
According to recent reports, Saudi Arabia continues to push for a three-month extension of current production cuts. However, other OPEC+ members want to gradually increase oil production.
There are several issues that OPEC+ has to deal with. Demand for oil is different in various regions. While Europe is suffering from lockdowns, Asian economies continue to rebound. Not surprisingly, those suppliers who ship their oil to Asia want to increase their output.
OPEC+ did not manage to achieve full compliance with the current deal. While compliance was very strong by OPEC standards, several members like Iraq or Nigeria exceeded their quotas.
The rising production from Libya, which is exempt from the production cut deal due to the civil war, is another worrisome development for many OPEC+ members who do not want to lose their market share.
In addition, higher oil prices may boost U.S. shale oil production. Clearly, OPEC+ members do not want to subsidize recovery of their main competitor which completely distorted the marketplace in the previous decade.
OPEC+ Must Find A Way To Support The Market
As I wrote in my previous article on oil, the best-case scenario for the oil market is a three-month extension of current oil production cuts. However, OPEC+ may be unable to reach such a deal if negotiating positions of its members are too far apart.
However, it will be vital to get any deal that could provide support to the market. Otherwise, crude oil inventories may rapidly increase and put serious pressure on oil prices.
While oil is losing ground today, the market continues to expect support from OPEC+ and does not believe in the worse-case scenario which will bring additional production of 2 million barrels per day (bpd) in January 2021. Most likely, oil traders are right, and OPEC+ will manage to craft a deal which will support the market during the first quarter of the next year.
For a look at all of today’s economic events, check out our economic calendar.