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Oil futures edged lower Tuesday as the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, delayed a decision on whether to extend existing output curbs until later this week.
West Texas Intermediate crude for January delivery CL.1, -0.24% fell 15 cents, or 0.3%, to $45.19 a barrel on the New York Mercantile Exchange. February Brent crude BRN00, -0.10%, the global benchmark, was off 7 cents, or 0.1%, at $47.81 a barrel on ICE Futures Europe.
Oil rose sharply in November, cheered by progress toward COVID-19 vaccines which may enable a stronger economic recovery in 2021. Both benchmarks rose around 27% in November.
OPEC+ had been slated to decide the fate of its existing curbs on Tuesday. The current limits, which cut output by 7.7 million barrels a day, are due to ease by 2 million barrels a day in January, though it’s been widely expected they would move to extend the curbs.
The meeting was pushed back to Thursday, when OPEC leaders are expected to meet with top Russian producers, The Wall Street Journal reported. OPEC had aimed to reach an agreement inside the cartel on Monday, but held off on due to lingering differences between Persian Gulf producers, such as Saudi Arabia and the United Arab Emirates, and Russia over past lack of compliance with earlier cuts, the newspaper reported.
“Clearly, failing to come to a deal at the end of this week will be bearish for the market, with a three-month rollover of the current 7.7M barrels-a-day cuts already largely priced in,” said Warren Patterson, head of commodities strategy at ING.
The group needs to extend the deal to ensure the market continues to draw down inventories in the first quarter of next year because vaccine developments are unlikely to change the demand outlook over the next few months, he said.
An extension of the current OPEC+ cuts would remove around 150 million barrels of crude from the market in 2021, assuming a small degree of noncompliance, wrote analysts at JBC Energy, a Vienna-based consulting firm, in a Monday note.
While there is no realistic scenario in which U.S. production could make up for that impact in the near term, “the financial benefits implied by higher prices (if sustained of course) would make any future adjustment needs that much more costly for OPEC+, from both a size and price perspective,” they wrote.
“Long story short, while we can see that a three-month extension is still the likeliest outcome, the most fundamentally prudent course of action would for us be some compromise where production gets boosted by a certain amount every month to at least try to not have prices give too much opportunity to non-OPEC+ players before we can be sure that the market can really digest that next year,” they said.
