Crude Oil Prices Fall as Market Reassesses Covid, OPEC+ Outlook

© Reuters.

By Geoffrey Smith — Crude oil prices fell on Tuesday amid a broad sell-off of risk assets in the wake of Monday’s surge of hopes for a quick end to the pandemic.

Market sentiment wasn’t helped by weaker-than-expected U.S. economic data that were a reminder of the threat to demand from the latest wave of Covid-19, or by a meeting of OPEC and its allies that failed to give a clear signal about its output policy.

By 11:15 AM ET (1615 GMT), U.S. futures were down 0.8% at $41.06 a barrel, while futures were down 0.8% at $43.47 a barrel. 

U.S. gasoline RBOB futures were down 0.5% at $1.1417 a gallon.

The meeting of the ‘Joint Technical Committee’ of the OPEC+ bloc of producers started early afternoon in Vienna without any clear commitment to putting off an increase of 2 million barrels a day in output that’s currently scheduled for the start of next year. The meeting was not expected to produce any decisions, but had been expected to make a recommendation to postpone the measure, given that the spread of the coronavirus is leading to ever-tighter restrictions in Europe and the U.S., putting fresh pressure on global demand.

“Our own balances suggest that if OPEC+ does not amend the production cut agreement and increases output from January, we are in for a multi-month supply glut at least for the first half of 2021,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen in e-mailed comments. “The market now has partly priced in an avoidance of the scheduled January production increases, so although such a decision will definitely bring relief and a price uptick, the effect will be moderate.”

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 The expectation that the supply increase will be pushed back still seems well-founded, however.  Saudi Arabian Oil Minister Prince Abdulaziz bin Salman was quoted by newswires as saying ahead of the meeting that: “We must be prepared to act according to the requirements of the market.” .

That’s consistent with earlier comments that he was open to “tweaking” the existing accord, under which OPEC and its allies – chiefly Russia – are holding back 7.7 million barrels a day of output, keeping it deliberately below current global consumption levels in order to bring global oil stockpiles back down to their historical average. Later Tuesday, the American Petroleum Institute will publish its weekly estimate of U.S. crude stockpiles.

Prince Abdulaziz said that recent announcements that experimental drugs were effective against Covid-19 are “allowing us to see some glimmers of light at the end of the tunnel.”  However, global mobility is still struggling, especially from the aviation sector: easyJet (LON:), Europe’s second-largest airline, saying earlier Tuesday that it intends to fly only 20% of its planned capacity in the current quarter.

“This virus still has the potential to upset recovery plans, Prince Abdulaziz was quoted by Argus Media as saying. “There is still a way to go until we reach the other side of the long-awaited pandemic tunnel.”




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