Oil prices fell on Tuesday as concerns over mounting supply returned to the fore after leading producers delayed talks on 2021 output policy that could extend cuts as the coronavirus pandemic continues to sap fuel demand.
Brent crude was down 26 cents, or 0.5 percent at $47.62 per barrel by 05:50 GMT, after dropping more than 1 percent on Monday. West Texas Intermediate was down by 23 cents, or 0.5 percent at $45.11 per barrel, having dropped 0.4 percent in the previous session.
Still, both contracts surged around 27 percent in November after COVID-19 vaccine developments raised hopes of an economic recovery that could boost fuel demand.
OPEC+, which comprises the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, delayed talks on output policy for next year until Thursday, three sources told the Reuters news agency, as key players still disagreed on how much oil they should pump amid weak demand.
The Bloomberg news agency also reported the delay.
The grouping had been scheduled to hold its meeting on Tuesday after discussions of key ministers on Sunday failed to reach a consensus.
[Bloomberg]“The group will probably find some face-saving compromise, with a short extension being the most likely outcome followed by a phased production return,” RBC Capital Markets said in a note.
“Nonetheless this latest fracas does not bode well for collective cohesion in 2021 as vaccine optimism abounds and producers anticipate a strong recovery,” RBC said.
Ministers are reportedly discussing whether to increase production in January as planned or maintain the cuts that have helped create a rally in oil prices. While some see the market as still too fragile to accept more barrels, others are keen to ramp up production and make the most of rising prices.
This week’s meeting – and the expected decisions on output levels – are a follow-up to the vast production cuts made during the depths of the pandemic. The alliance had planned to ease some of those curbs at the start of 2021, in anticipation of a global economic recovery.
Sources told Reuters that the United Arab Emirates had complicated the picture by signalling it would be willing to support a rollover of supply cuts only if group members’ compliance with cut commitments improved.
The group is due to ease current production cuts by 2 million barrels per day (bpd) from January, but with demand still under pressure from the pandemic, OPEC+ was considering extending current cuts into the first months of next year, a position backed by de facto OPEC leader Saudi Arabia, sources said.
A Reuters poll of 40 economists and analysts forecast Brent would average $49.35 a barrel next year, estimating that prices would have some trouble sustaining a rally.