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Vladimir Zernov
WTI Crude Oil

Oil Video 30.11.20.

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OPEC+ Weighs Its Options

OPEC+ has just started its two-day meeting where it will discuss its next moves. According to a recent Reuters report, OPEC+ is evaluating several potential scenarios.

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The group may extend current production cuts for the first three or four months of 2021, or it may choose to gradually increase production from January 2021.

The four-month extension of current production cuts is the most bullish scenario for the oil market. At the same time, it is also the least probable option. Budgets of many OPEC+ members are stretched and they need to increase their revenues as soon as possible.

The three-month extension looks like the most probable scenario at this point as it will provide the necessary support to the market at a time when demand is still weaker than originally expected due to European lockdowns.

A decision to gradually increase oil production may put some pressure on oil prices as it will lead to higher supply from the very first month of 2021. Saudi Arabia will likely oppose this option.

Russia’s position is less clear. Before the meeting, Russia stated that it did not have strong differences with OPEC as in early 2020 but did not clarify whether it wanted to gradually increase production or supported the extension of current production cuts.

Oil Received Strong Support Near The $45 Level

Interestingly, oil managed to settle above the $45 level after the recent rally and has not yet suffered any material pullback. Most likely, oil gets support from those traders who believe that OPEC+ will do what’s right for the market and extend current production cuts for three or four months.

The upcoming trading sessions will likely be volatile as traders will react to rumors and leaks from the OPEC+ meeting. In the near term, OPEC will also react to inventory data which will indicate whether demand is hit by the second wave of the virus.

The recent inventory reports were mostly encouraging. While the latest API Crude Oil Stock Change report showed that crude inventories increased by 3.8 million barrels, the market focused on EIA Weekly Petroleum Status Report data which indicated that crude inventories declined by more than 0.7 million barrels.

The EIA data will be released soon after OPEC+ announces its decision and may amplify oil’s moves.

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

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