Crude oil futures fall after stalemate sees OPEC delay meeting

Singapore — 0207 GMT: Crude oil futures fell during mid-morning trade in Asia Dec. 1 after OPEC members failed to agree on extending current output cuts and have delayed the second day of its meeting to later in the week.

At 10:07 am Singapore time (0207 GMT), ICE Brent February contract was down 32 cents/b (0.67%) from the Nov. 30 settle to $47.56/b, while the January NYMEX light sweet crude contract was down 36 cents/b (0.79%) at $44.98/b.

The January ICE Brent contract had slid to settle at a five-day low of $47.59/b on Nov. 30 following the stalemate in talks between the OPEC+ members.

"Crude has shed some of its vaccine premium to price in the OPEC+ rollover uncertainty. It will likely remain in a holding pattern until there is a final decision," Vandana Hari, CEO at Vanda Insights, told S&P Global Platts Dec. 1.

OPEC held its formal meeting on Nov. 30, intending to clinch a deal, while ministers would then hammer out the details the following day with its nine non-OPEC partners. The second day of the meeting, however, has been delayed to Dec. 3 to allow for further discussions among its own members.

Delegates said the framework of a cut extension for three months had been reached at OPEC's formal meeting on Nov. 30, but the UAE, which has been wavering in its commitment to the group, has yet to take a position, endangering the negotiations, while lack of compensation cuts by some members have piqued some countries.

"The fact this spat has the entire oil complex sitting on the edge of a razor blade in the face of a second wave COVID-19 lockdown demand slump is particularly problematic for the global oil complex," Axi chief global market strategist Stephen Innes said in a Dec. 1 note.

"And all this noise strongly suggests that since the Russia/Saudi Arabia price war, this is one of the most contentious OPEC meetings with UAE fiercely opposing an extension and the killing of Iran's most senior nuclear scientist, all suggest reaching an agreement will be difficult," Innes added.

Without an extension agreement, the OPEC+ curbs are scheduled to ease to 5.8 million b/d from January, which many analysts have said could overwhelm the market given the recent surge in crude production from quota-exempt Libya.

While the positive development in COVID-19 vaccine has buoyed market sentiment, a global deployment of vaccines will take time and its impact will likely be seen only in the second half of 2021, Algeria's energy minister Abdelmadjid Attar said in his opening remarks to the OPEC conference on Nov. 30.

"The road to recovery is long and bumpy," Attar said.

ANZ analysts estimated that without the output extension, the market could see surplus as high as 1.5-3 million b/d.

"Even though the prospect of a virus vaccine has helped support the market, the lack of an agreement to extend cuts would likely lead to a selloff in crude oil prices," ANZ analysts said in a report on Dec. 1.

Vanda Insights' Hari noted that despite no agreement being reached thus far, there seems to be a general consensus among the OPEC+ alliance that raising output from January is a "bad idea".

"To the surprise of some, this meeting has turned out to be a difficult one, but I believe the alliance will end up taking the cautious and patient approach by extending its cuts. Until that's clear, the 1.9-million-b/d question will overshadow developments on the vaccine front and likely the mid-week US stocks data too, unless the latter springs a major bearish surprise," Hari said.