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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.