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OPEC refuses to panic amid oil market rout

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OPEC refuses to panic amid oil market rout

Highlights

Brent slumps over 6% to $58.45/b in London

Concern on oversupply weigh on sentiment

OPEC set for crunch meeting on December 6

London — OPEC is showing no public signs of panicking to the largest weekly plunge in oil prices since 2016, with five senior sources telling S&P Global Platts that the organization has not discussed any plans for an extraordinary meeting in the coming days.

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ICE Brent crude futures crashed through the $60/b mark Friday as the market's bearish mood continued to gather momentum in holiday-thinned trade with low liquidity amplifying the slide. That was amid expectations of oversupply as talk turned to whether OPEC and Russia can bring production levels down quickly enough in the months ahead.

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Brent collapse pinches producer breakevens

At one point in afternoon European trading Friday, Brent crude fell more than 6% to $58.45/b, the lowest intraday level since October 26, 2017. At that price, Brent's week-long slide was the biggest since January 2016.

"Thanksgiving did not stop European traders and those with itchy fingers in the US making their feelings perfectly clear about the direction of oil prices," PVM analysts said in a note.

The oil market has been in a tailspin since October 3 when it peaked above $86/b, dizzy on a concoction of US, Saudi Arabia and Russia record production. Bears have in recent days have been focusing on Saudi Arabia's stated production of above 10.7 million b/d and the regular tweets from US President Donald Trump pressuring OPEC to drive prices lower and thanking the kingdom for its contribution in ramping up output.

"We are in a position of all round weakness," Ole Hansen, Head of Commodity Strategy at Saxo Bank said, adding the weakness was very likely to remain "until [the market] sees a fundamental change".

OPEC, US STAND-OFF

OPEC and 10 non-OPEC allies, led by Russia, will hold their regularly scheduled meeting December 6-7 in Vienna to discuss output policy for 2019.

"It will be politically difficult for Saudi Arabia to organize a coordinated OPEC supply cut at the December 6 Vienna meeting. The US President has provided close support to MBS [Crown Prince Mohammed bin Salman] and we still don't see how Trump would accept the affront of an OPEC cut," Petromatrix said.

An OPEC/non-OPEC monitoring committee co-chaired by Saudi energy minister Khalid al-Falih on November 11 strongly hinted that the coalition would consider production cuts of up to 1.4 million b/d to shore up what many analysts forecast as a tepid market ahead. But that was before Trump this week voiced his political support for Saudi Arabia, repeatedly calling out the kingdom to keep oil prices low, as it deals with the global fallout from the murder of dissident and journalist Jamal Khashoggi.

"Being hit in the pocket or being hit by Trump is the tough choice OPEC will be facing when it meets," Hansen said, with many analysts outlining the difficulty OPEC has in going against the wishes of the US administration.

Brent crude futures prices have fallen more than $10/b since the monitoring committee meeting. That has complicated visibility around OPEC's plans at the meeting, as the kingdom tries to balance politics with its desire for higher prices. Indeed, the recent collapse in oil prices brings OPEC's key producers' fiscal breakevens into focus once again, with the IMF's average breakeven for the wider Middle East for 2018 estimated at just above $80 a barrel.

Oil majors' share prices also took a hit with the price plunge: BP's shares were down nearly 3% and Shell shares nearly 4% on the London Stock Exchange late Friday.

--Herman Wang, herman.wang@spglobal.com

--Emma Kettley, emma.kettley@spglobal.com

--Paul Hickin, paul.hickin@spglobal.com

--Edited by Robert Perkins, robert.perkins@spglobal.com

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