Oil loses momentum amid lack of Opec+ consensus

The 23-member alliance is set for a challenging meeting

FILE PHOTO: The OPEC logo pictured ahead of an informal meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) in Algiers, Algeria, September 28, 2016. REUTERS/Ramzi Boudina/File Photo

Oil prices opened lower on Monday as initial reports suggest Opec+ members have yet to agree on extending the current level of curbs for another three months at an informal meeting.

The group, which usually tries to reach a framework understanding ahead of its meetings, is gathering virtually tomorrow.

Brent, the international oil benchmark, was down 2.4 per cent, trading at $47.02 per barrel at 11.11am UAE time. West Texas Intermediate, which tracks US crude, was down 1.82 per cent at 44.70 per barrel.

The 23-member alliance of producers is currently drawing back 7.7 million barrels per day of output. As several countries enforce a second round of lockdowns amid the rising number of Covid-19 cases, Opec+ is mulling an extension of the current volume of cuts.

Earlier this year, when the group agreed to a historic draw of 9.7m bpd between May and July, the producers had agreed to a gradual tapering of restrictions. As per earlier guidelines, the group was set to start cutting 5.8m bpd from January 2021.

However, subdued global demand due to Covid-19 that results in lockdowns and rising inventories, alongside growing production from Libya, which is now pumping 1.25m bpd, has forced Opec+ to consider maintaining the current level of curbs.

"Oil is struggling to find fresh buyers even more so after Dr [Anthony] Fauci, in no uncertain terms, said: 'We may see a surge upon a surge' in two or three weeks over the holiday season," said Stephen Innes, Chief Global Market Strategist at Axi. Dr Fauci is the top epidemiologist in the US and currently heads the National Institute of Allergy and Infectious Diseases.

To date, the US has recorded more than 13.7 million Covid-19 infections, over 8.1 million recoveries and 273,077 deaths, according to Worldometer, which is tracking the pandemic.

"We expect Opec+ to roll over the current group output cuts of 7.7m bpd from base levels for a further three months to end-1Q2021 due to the weakening near-term demand outlook,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, said.

"The return of Libya’s crude output to market since end-September, at a time of weakening global demand, has likely slowed the pace of the oil market rebalancing, in our view,” she added.

Meanwhile, late Sunday, militants targeted an small oil refinery in the northern Salahuddin province of Iraq. The attack, claimed by the Islamic State, caused a fire at the Siniya oil refinery, leading to a temporary halt in operations. The oil processing facility is near the country’s largest refinery at Baiji.

Last Wednesday, an oil tanker was damaged after an explosive-laden boat off the western coast of Saudi Arabia was destroyed by the Arab coalition in Yemen.

Earlier that week, a missile fired by the rebels struck a Saudi Aramco oil depot in Jeddah in the west of the country.

"Oil prices are likely to be testy over the next few days and bounce off of competing headlines from the Opec+ meeting," said Edward Bell, a senior director of market economics at Emirates NBD.

Goldman Sachs projects Brent could rise to $65 a barrel by the end of 2021, while Standard Chartered sees the benchmark at $44.