Crude oil frets possible OPEC discord Crude oil frets possible OPEC discord Crude oil frets possible OPEC discord

Crude oil frets possible OPEC discord

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  The impressive November rally in crude oil, fuel products and oil producers on vaccine optimism has grinded to a halt. A surprise discord between Saudi Arabia and the U.A.E. raising the stakes ahead of Thursday's delayed OPEC+ meeting. Failure to postpone the precious agreed January production hike risks sending oil lower to challenge recently established long positions. This given the current mismatch between weak Covid-19 related fuel demand and the market increasingly having started, perhaps prematurely, to price in an expected strong recovery in 2021.

What is our trading focus?

OILUKFEB21 – Brent Crude Oil (February)
OILUSJAN21 – WTI Crude Oil (January)


The impressive November rally in crude oil, fuel products and oil producers on vaccine optimism has hit a stumbling block given the potential risk of OPEC+ failing to curb production for a few more months. The vaccine news last month helped drive a +20% rally in crude oil and +40% in some oil company stocks on the assumption that a brighter demand future awaits in 2021. With lockdowns and reduced mobility being replaced by surging demand from returning commuters together with renewed demand for holidays and business travels.

OPEC met on Monday and following a long meeting it was clear that the group struggled to find common ground in how to deal with a short term troubling demand outlook and the expected pickup next year. Given continued lockdowns and reduced mobility in Europe and the U.S., the market was expecting OPEC+ would rollover the current agreement and postpone the planned 1.9 million barrels/day production hike by a few more months.

Surprisingly this time, it was not a discord between Russia and Saudi Arabia that prevented the group from reaching a clear agreement on whether to delay the planned production increase. Instead a perhaps more dangerous divide, from an OPEC stability perspective, has emerged between Saudi Arabia and the U.A.E., two GCC countries that normally speak with one voice.

Without ruling out a price supportive delay, the U.A.E. Energy Minister has insisted on bigger compliance and speedy implementation from overproducing countries. Failure to reach an agreement could send crude oil lower by several dollars, thereby risking a snowballing effect of long liquidation from speculators who recently bought more than 180 million barrels.

Source: Saxo Group

We maintain the view that cracks will be repaired as anything but an agreement to postpone would be a massive own goal. With the expected pickup in fuel demand - once the Covid-19 cloud lifts - being just a few months away, the risk of sending prices lower just before the finish line makes little sense.

That aside, the current risk reward in crude oil following the November surge, is now potentially slightly skewed to the downside as the market may struggle to find more value in a Brent price approaching $50/b in a not yet balanced market.

Also as the vaccine optimism begin to be fully priced in some nervousness may start to emerge with regards to just how strong the anticipated demand pick up will be. While Asia, led by China, is already firing on all cylinders, the outlook for the rest of the world looks a bit more challenging. Two recent headlines from the Wall Street Journal highlight the potential challenges that lie ahead.

According to airline experts, between 19% and 36% of all business trips could disappear, given efficiencies developed during the lockdown and the cost saving nature of avoiding sending representatives around the world. At the same time, the work-from-home culture has increasingly been adapted by companies and workers around the world. Companies not experiencing any loss of productivity are likely to support this new culture as it reduces cost while improving workers quality of life, especially in big cities where the daily commute often “steals” a lot of time.

Article headlines from

Next up today at 15:30 GMT, the “Weekly Petroleum Status Report” from the U.S. Energy Information Administration (EIA). Last night crude oil traded lower after the an industry report from the American Petroleum Institute showed a surprise build in crude oil and a bigger-than-expected rise in both gasoline and distillate stocks.

While the report may only have a short-term impact, the market remains preoccupied with the early 2021 outlook and Thursday’s delayed OPEC+ meeting.

As per usual I will post updates and comments on my Twitter handle @ole_s_hansen


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992