Oil slips near $41 before OPEC+ meets to assess state of market

Oil slid near $41 a barrel in New York before an OPEC+ meeting to assess the state of the market as demand comes under pressure once again from a resurgent coronavirus.

The Joint Ministerial Monitoring Committee, which typically reviews compliance with the group’s pledged output cuts, will meet online Monday. While no supply decisions are expected until the conclusion of a two-day gathering on Dec. 1, leading members Saudi Arabia and Russia have stepped up diplomacy in recent days.

Ministers are meeting against a backdrop of uncertain oil demand. For months now, the recovery in consumption has been driven largely by China. The world’s largest importer refined about 13.5 million barrels a day of oil for a fourth month in September and its latest growth figures showed that it continues to be the world’s only major engine of economic expansion.

With uncertainty dominating the market, prices have struggled to break far away from $40. While there was renewed optimism about a stimulus deal in the U.S. on Monday, the International Energy Agency said the outlook for the market remains fragile due to the pandemic. That leaves OPEC+ treading a fine line as it decides whether to add more supply.

“The fact that Russia’s President Putin and Saudi Prince Bin Salman talked to one another on the phone twice last week suggests that the plans of OPEC and its allies are soon likely to be closely reviewed,” said Eugen Weinberg, head of commodities research at Commerzbank AG. “The fundamental situation on the oil market is certainly cause for concern, with ongoing demand weakness on the one hand and rising production on the other.”

Prices

  • West Texas Intermediate for November delivery fell 0.7 per cent to $40.61 a barrel as of 10:52 a.m. London time
  • Brent for December settlement slid 0.7 per cent to $42.64

Though coronavirus restrictions continue to grow, in the short-term there are signs that markets are tightening. Brent’s nearest futures contract ended last week at its smallest discount to the next month since the end of July, a market structure that indicates easing concerns about oversupply. It comes as a unit of China’s Rongsheng Petrochemical purchases large amounts of crude for a refinery expansion.

If market conditions don’t change by Dec.1, OPEC+ is likely to decide to bring back less supply than the currently planned 1.9 million barrels a day in January, Citigroup Inc. analysts including Ed Morse wrote in a report. On Friday, JPMorgan Chase & Co. analysts, including Natasha Kaneva said the group may choose to defer its output taper by a quarter.

© 2020 Bloomberg L.P.