Oil Price Fundamental Daily Forecast – Rally Stalls as OPEC+ Begins Ministerial Committee Meeting

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Tuesday at the start of an OPEC+ ministerial committee meeting designed to look at adjusting plans for oil supply cuts next year as the coronavirus pandemic continues to drive down demand.

The group known as OPEC+, comprising the Organization of the Petroleum Exporting Countries, Russia and others, are now due to wind down cuts that now stand at 7.7 million barrels per day (bpd) to 5.7 million bpd from January.

At 12:44 GMT, January WTI crude oil is at $41.45, down $0.12 or -0.29% and January Brent crude oil is at $43.70, down $0.12 or -0.27%.

Winding down production cuts at a time when demand is falling and production from Libya is rising, raises the chances of a supply glut, which has prompted OPEC+ to consider pushing back any increase in supply by three or six months.

Confidential Report Seen by Reuters

Inventories

Reuters is reporting that OPEC+’s Joint Technical Committee (JTC) has looked at various scenarios on altering the deal on output cuts and the impact each scenario would have on reducing OECD inventories in line with the five-year average.

• Scenario A:  The base case adopts modified data from the November 2020 OPEC monthly report, in particular on oil demand.
• Scenario B:  This alternative scenario assumes higher contractions for world oil demand and non-OPEC supply in 2020, and lower growth for demand and non-OPEC supply in 2021.
• Scenario C:  This assumes extending current crude output cuts, using the base case framework, to the end of the second quarter 2021.
• Scenario D:  This assumes extending current crude output cuts, using the base case framework, to the end of the second quarter 2021.

Conformity With Cuts

OPEC+ has yet to achieve full compliance among all members of the group with the oil cuts agreed in 2020. The group has asked countries that overproduced to make additional compensation cuts until the end of the year. OPEC+ figures show cumulative overproduction for all participating members is at 2.346 million bpd.

Demand

OPEC expects global demand to rebound more slowly in 2021 than previously thought due to rising coronavirus cases.

Daily Forecast

We could be looking at a sideways to lower trade until the ministerial committee releases a few nuggets of information from there meeting. Until then, traders may be reluctant to bet in a big way on either direction.

The general consensus is that OPEC+ sees oil inventories declining further in 2021 should producers extend supply curbs for three months or more. This supports the case for a tighter policy on crude output next year.

This is potentially bullish for crude oil if it has not already been priced into the market.