Oil Remains Volatile Ahead Of OPEC+ Decision On Production Cuts

Oil Video 04.01.21.

OPEC+ Meeting In Focus

Today, OPEC+ members meet to discuss the size of production cuts for February. While there are many downside risks for the oil market in the first half of 2021 due to the negative impact of the pandemic, some OPEC+ countries may push for another increase of production levels.

Previously, Russia signaled that it wanted to see gradual production increases of 500,000 barrels per day (bpd) per month in order to reach the previous production increase target of 2 million bpd in April.

However, demand remains fragile so Saudi Arabia is expected to push for the extension of current production cuts for one month. Obviously, this is the preferred scenario for oil bulls as such a move will provide more time for demand to increase.

If OPEC+ decides to increase production by 500,000 bpd in February, oil may find itself under pressure. Inventories remain at elevated levels, and there is plenty of work to do on this front. Another increase of production at a time when many countries are forced to implement additional virus containment measures may push inventories higher which will be bearish for the oil market.

The New Year Starts With New Coronavirus-Related Restrictions

Scotland has just imposed a a new lockdown while British Prime Minister Boris Johnson stated that he would soon impose stricter measures in England in order to contain the new, more infectious strain of the virus which emerged in the UK.

Meanwhile, Vietnam’s health ministry proposed to suspend all flights from countries which have been hit with the new coronavirus strain from the UK. The decision has not been made yet but it certainly highlighted the risks for oil demand in the first quarter of 2021.

At this point, the situation in Europe is clearly developing in the wrong direction due to the new strain of the virus so virus-related restrictions will likely have to be extended for the full January in many countries. At the same time, the economic rebound in Asia continues at a healthy pace so it may soften the blow for the oil market.

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