Oil slipped near $40 a barrel in New York as the IEA cautioned on a fragile outlook and Russia indicated OPEC+ may stick with its current plans to lift output.
The group’s plans to boost production in January will leave the market in a precarious balance, and potentially unable to handle higher supply from elsewhere or a drop in demand, the International Energy Agency said. Russia’s energy minister said his nation expects to be able to gradually raise production without harming the market.
Though prices edged lower, there were bright spots. A Chinese mega-refiner is snapping up barrels of Middle Eastern crude to feed trial runs of its expanded plant. At the same time India’s refiners have cranked up processing to meet higher demand during a festive period.
A lot of traders’ attention is turning to plans by OPEC+ to raise supply next year in line with its agreement earlier this year. While some producers inside the group are said to be having doubts, the United Arab Emirates and now Russia have said that, for the time being, the group will proceed as scheduled. Saudi Arabian Crown Prince Mohammed Bin Salman and Russian President Vladimir Putin on Tuesday urged the alliance to comply with agreed cuts as virus infections rise again.
“OPEC+ could provide a silver bullet by not tapering cuts at the start of next year as planned,” said PVM Oil Associates analyst Stephen Brennock. “But such a proposition will be hard to swallow by some of the group’s members.”
Despite its cautionary outlook, the IEA said that the oil market will see inventories fall by 4.1 million barrels a day in the fourth quarter. Demand is currently at about 94% of 2019 levels, it said. This could be jeopardized by a surging pandemic.
Crude is also being pulled out of storage tanks at the Saldanha Bay terminal in South Africa as OPEC+’s output curbs remain in place for now. A supertanker is taking a cargo of crude to India, while another smaller vessel is heading to France. Fuel stocks at a Middle Eastern hub are also sliding.
