Oil Moves Higher Despite Signs That OPEC+ Will Gradually Increase Production

Silver Video 03.12.20.

Oil Traders Wait For OPEC+ Decision

Oil continues to trade near the $45 level as traders wait for news from OPEC+. While the market has initially expected that OPEC+ will extend current production cuts for the first three months of 2021, the group’s position has moved towards a gradual increase in production.

According to the Russian business newspaper Vedomosti, Russia supports a scenario when current production cuts will be kept in place in January, followed by an increase in February.

Mass vaccination and the anticipated rebound of oil demand serve as key catalysts for Russia’s position, although the country does not rule out an extension of current cuts for the first quarter of the next year.

According to recent reports, United Arab Emirates also support this position. It remains to be seen whether Saudi Arabia will be happy with this outcome as it is the main proponent of the extension of current cuts for as long as possible.

Interestingly, oil traders do not look worried about the gradual increase in production. Most likely, the market believes that mass vaccination will soon boost demand for oil and provide enough support to oil prices. At the same time, it is not clear whether inventories will continue to decrease at a healthy pace in this scenario.

Gasoline Demand Remains Under Pressure

According to the recent EIA Weekly Petroleum Status Report, demand for gasoline in the U.S. decreased from 8.13 million barrels per day (bpd) to 7.97 million bpd. A year ago, gasoline demand stood at 9.03 million bpd. In this light, it is not surprising that gasoline inventories have increased by 3.5 million barrels last week.

The recent job market data from the U.S. was mixed as ADP Employment Change report was materially worse than analysts expected while today’s Initial Jobless Claims report exceeded expectations. It is not clear whether the second wave of the virus puts additional pressure on the job market and business activity, but the current decline in gasoline demand is mostly in line with seasonal trends.

Most likely, gasoline demand will not be able to get closer to last year’s levels until mass vaccination so gasoline inventories will continue to move higher in the remaining weeks of 2020.

For a look at all of today’s economic events, check out our economic calendar.