OPEC decision colours oil price movements

Will a $50 WTI price appear before the end of the year?

Oil trading

Things are starting to look brighter in the oil world, but the pandemic could potentially cool off overly optimistic outlooks in the oil world.

Prices have dropped off since OPEC’s December talks concluded with the positive news the cartel has decided to ease production cuts.

At the time of writing, WTI and Brent are trading above $45 and $48 per barrel, although they started the week above $46 and $49 respectively.

Following tense negotiations, OPEC+ as finally reached an agreement to gradually increase its production output. Members will be collectively pumping out 500,000bpd beginning in January through to at least March.

Despite some members, noticeably Saudi Arabia, pushing to keep to the existing production cuts in place, vaccine-led oil price rallies have recoloured the picture. Since November, prices have been consistently rallying, which may affirm other members eagerness to remove the stoppers and start producing more liquid gold come 2021.

Russia, a country that derives over 40% of its government revenues from hydrocarbons, was one of the countries pushing for a production increase.

According to Russian energy minister Novak, Russia’s share of the incremental rise will be 126,000 bpd which Saudi Arabia is expected to equal. This means that Saudi Arabia and Russia will have combined a quota of 9.119 million bpd in January, followed by Iraq at 3.857 million bpd and UAE at 2.626 million bpd.

The total OPEC production quota is estimated to be 22.119 million bpd, up by 304,000 bpd from its quota between August – December, while the rise in non-OPEC quota is estimated to be 196,000 bpd.

More oil is coming, but demand may still not accelerate rapidly.

While the UK is making history by rolling out its covid-19 vaccine programme, other major oil markets aren’t so prepared.

The US is seeing cases continue to rise and rise and some of the more populated states are enforcing stricter post-Thanksgiving lockdown rules. California, for instance, will be in lockdown mode, and as one of the more driver-heavy states (anyone who has driven in LA can attest to that), will see gasoline demand shrink.

In fact, gasoline demand is down across the board Stateside. Drivers simply aren’t filling up as much because they aren’t driving as much.

Data due from the American Petroleum Institute later on Tuesday and from the U.S. government on Wednesday is expected to show that U.S. crude stocks fell last week, while refined product stockpiles rose, according to estimates from five analysts polled by Reuters.

Natural gas

Stabilisation is the name of the game for natural gas prices this week.

Despite forecasts from the previous fortnight suggesting December temperatures would be colder, they are actually warmer than average for this time of year. As ever, this plays into less domestic and commercial demand for gas across the US, which in turn is keeping prices low.

Natural gas prices declined over 9% last week and are now down 25% since the start of November.

According to the EIA, the average total supply of natural gas remained the same as in the previous report week, averaging 95.8 Bcf per day.