Oil retreats on signs of OPEC+ discord ahead of key meeting
Oil dropped toward $45 a barrel as a consensus within OPEC+ to postpone an output hike planned for January remained elusive ahead of a meeting of the cartel’s power brokers later on Monday.
Futures in New York declined 1.1% in Asian trading. Most participants in an informal discussion of OPEC+ ministers on Sunday supported keeping production curbs at current levels into the first quarter, said one delegate, although there was opposition from the United Arab Emirates and Kazakhstan.
The Trump administration, meanwhile, is poised to add four Chinese companies including energy giant China National Offshore Oil Corp. to a list of firms owned or controlled by China’s military, Reuters reported. Worsening relations between the world’s two largest economies may threaten energy demand.
Oil is set for the biggest monthly gain since May on signs of Covid-19 vaccine breakthroughs, raising optimism for a long-term rebound in fuel consumption. Unless the existing OPEC+ agreement is revised this week, however, producers will restart about 1.9 million barrels a day of halted output, potentially pushing the global market back into surplus.
While a majority of watchers are expecting a three-month delay to the planned output increase, a recent price rally may complicate talks. Some producers such as Iraq -- which is seeking an upfront payment for its crude -- are facing a cash squeeze and are keen to pump more.
“The argument that might be going on within OPEC centres around the big improvement in the demand outlook for 2021,” said Michael McCarthy, chief market strategist at CMC Markets. “The expectation is that Asian demand will lead the way and drive the improvement in the market, particularly with Europe and the US potentially facing further Covid containment measures.”
The global demand outlook remains mixed due to an uneven recovery from a virus-induced crash. China is continuing its robust rebound, with at least one fuel supplier already gearing up for an expected surge in air travel ahead of the Lunar New Year holiday in February. In the US, foot traffic in airports hit the highest since March before the Thanksgiving holiday, though it remains about 1.5 million people lower year-on-year.
An official gauge of activity in China’s manufacturing sector rose faster that expected in November, suggesting the economy’s recovery is gathering pace toward the end of the year. Solid global demand for exports ahead of the Christmas period is helping to underpin the recovery.
The Middle East, meanwhile, is once again seeing rising tension. An oil refinery in Iraq’s north was hit by a rocket, causing a fire, according to al-Arabiya television. That comes after Iran accused Israel and the US of being behind the assassination of one of its top nuclear scientists Friday, vowing revenge.