Oil Is Trying To Settle Below The $41 LevelOil is under pressure as OPEC+ reportedly cuts its oil demand outlook for 2021.
Oil Video 17.11.20.
OPEC+ Will Likely Extend Current Production Cuts For Three Months
Reuters has recently published a report which stated that OPEC+ Joint Technical Committee (JTC), which met on Monday via videoconference, evaluated the extension of current production cuts for three and six months. The Joint Ministerial Meeting of OPEC+ countries is taking place today.
75% of retail CFD investors lose money
According to the report, JTC concluded that oil demand would grow by 6.2 million barrels per day (bpd) in 2021 compared to its previous estimate which called for growth of 6.5 million bpd.
If current production cuts were extended for three more months, OECD commercial inventories would be higher by 73 million barrels compared to the five-year average in 2021. A six-month extension would put material pressure on inventory levels, and they will be just 21 million barrels higher than the five-year average.
While the six-month extension of current production cuts will certainly help the oil market, OPEC+ will likely fail to get all members to comply with such a deal. The budgets of OPEC+ countries are heavily reliant on oil revenues, and many producers want to boost their exports as soon as possible.
In addition, some OPEC+ countries may be unhappy with the massive increase of Libya’s oil production which has already reached 1.2 million bpd. Libya is exempt from the production cut deal due to the civil war and plans to boost its production to 1.7 million bpd, potentially taking market share from other OPEC members. This situation creates significant tensions which make a six-month extension of current production cuts an unrealistic scenario.
Oil Traders Try To Find Balance Between Vaccine Hopes And Virus Reality
Today, oil is losing ground on fears that the situation with coronavirus will get worse before it gets better, putting additional pressure on oil demand.
The key question is whether oil traders will be ready to shrug off virus worries and focus on the longer-term outlook for oil. While OPEC+ will likely extend its production cuts for the first quarter of 2021, inventories will remain at elevated levels until demand for oil fully rebounds which will not happen before mass vaccination.
At this point, it looks like oil has found strong support near the $40 level but it will likely need additional positive catalysts to get to the test of the recent highs at the $43 level.
For a look at all of today’s economic events, check out our economic calendar.