Opec to extend oil cuts by three months

Marco Green
December 1, 2020

The Organisation of the Petroleum Exporting Countries (Opec) members have reached a consensus on the need to extend existing oil production cuts for three months from January and will work on convincing their allies in the wider Opec+ group to support such a move, Algeria's minister said on Monday.

Futures were 0.7 per cent lower in NY. While some see the market as too fragile to absorb additional barrels, others are keen to pump more to take advantage of higher prices following Covid-19 vaccine breakthroughs. The rebound highlights the uneven global demand picture OPEC+ is facing, with Europe and the US grappling with a resurgent outbreak.

Though, Monday's downfall in crude oil futures' prices came against the backdrop of a solid November that had witnessed a rise of as much as 27 per cent in crude oil futures' price, marking up the futures' biggest monthly rise since May which was mostly pinned on hopes of forthcoming pandemic vaccines that would likely to step up economic activities and lead to a hike in oil demands.

However, BCS Global Markets, while bullish, warned that there is substantial supply waiting in the wings from OPEC+ and "hyper-dynamic USA shale producers itching to drill again.[rig activity] was rising steadily this fall, even before oil began its most recent rally, and we think that as oil prices head towards $50 per barrel, a key inflection point may be crossed, accelerating USA oil drilling activity and, with a small lag, oil production".

The main cause of the friction at the meeting seems to be centered on some oil ministers looking to keep cuts for another three months, the United Arab Emirates issues with quotas and Kazakhstan's problems with an extension.

Hussein Sayed, analyst at FXTM, pointed out that demand has recovered in Asia but not Europe and the U.S. "Even though it's a sign that the fracture within the group is deep, the fact that they're willing to give two days to sort out disagreements is a positive sign". The more actively traded February Brent contract was down 37 cents at 47.88 dollars a barrel.

"Signs of disunity in OPEC raised the prospect of the group not agreeing to an extension of current production cuts", ANZ analysts said.

Oil prices fell on Tuesday as concerns over mounting supply returned to the fore after leading producers delayed talks on 2021 output policy that could extend cuts as the coronavirus pandemic continues to sap fuel demand.

Global fuel demand, meanwhile, still remains shaky.

Other reports by Click Lancashire

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