Oil Prices Decline Amid OPEC Friction
(Bloomberg) -- Oil fell the most in two weeks as tensions between OPEC members heightened the uncertainty of the group delaying its planned output increase.
Futures fell 1.7% in New York as informal talks continue by phone after OPEC+ shifted its final meeting to Thursday to allow for more time to reach a deal on production policy. Friction between Saudi Arabia and the United Arab Emirates prevented what was widely expected to be a routine agreement to delay an output increase scheduled for January.
“Last time Saudi Arabia got into a disagreement with the other OPEC members, they had reversed course,” said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago. “With oil prices running up for weeks now, it might be a short-term top in the market.”
With cracks appearing in the OPEC+ alliance, Saudi Energy Minister Prince Abdulaziz bin Salman signaled his dissatisfaction by threatening to resign as co-chair of a committee that oversees the output deal. The eroding unity among the group comes at a time when the market may struggle to absorb more barrels, with demand still weak due to the pandemic.
Still, the downside has been limited as portions of the oil futures curve continue to strengthen. The spread between Brent’s nearest contracts returned to backwardation, signaling anticipation for tighter supply and stronger demand.
“People figure this is the same old story,” said Michael Lynch, president of Strategic Energy & Economic Research. “They’ll argue but they’ll finally come to an agreement, because no one wants the price to collapse.”
- West Texas Intermediate crude for January delivery lost 79 cents to settle at $44.55 a barrel, the lowest in a week
- Brent for February settlement slid 46 cents to end the session at $47.42 a barrel
OPEC+ is likely to agree on a face-saving compromise, with a short extension the probable outcome followed by a phased return of production, RBC Capital Markets analyst Helima Croft wrote in a report. If an agreement isn’t reached and cuts are eased as scheduled, Brent prices are at risk of dropping back toward $40 and the market could face an oversupply of as much as 2 million barrels a day next quarter, Wood Mackenzie Ltd. said.
In some parts of the world, demand appears to be stabilizing. An armada of around 20 tankers carrying U.S. crude will be heading to Asia this month. Plus, factory activity in some of North Asia’s biggest export-led economies rebounded in November.
In the U.S., expectations are for a decline in domestic crude supplies last week, according to a Bloomberg survey. The industry-funded American Petroleum Institute reports its figures later Tuesday ahead of a U.S. government tally.
Other market news:
- With forward oil prices trading near their highest in months, there are growing signs producers have been using the rally to lock in future output.
- Some of Norway’s oil and gas production is under threat again as a long-running dispute with security guards over wages shuts down heliports and affects transport to projects out at sea.
- Bank of Montreal is winding down its U.S. oil and gas investment banking business and will focus on assets in Canada going forward, becoming the latest financial institution to cut ties with America’s beleaguered shale industry.
- Billionaire investor Carl Icahn agreed to provide $30 million of loans to SandRidge Energy Inc. after lenders withdrew a previous credit facility extended to the U.S. shale gas producer.
© 2020 Bloomberg L.P.
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