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Crude futures fall on pre-OPEC+ meeting jitters

Singapore — 0248 GMT: Crude oil futures were lower during mid-morning trade in Asia Nov. 30 amid profit-taking activity as the market grew anxious ahead of the OPEC and non-OPEC Ministerial Meeting due to signs of discord in the alliance over the extension of production cuts.

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At 10:48 am Singapore time (0248 GMT), the ICE Brent January contract was down 37 cents/b (0.77%) from the Nov. 27 settle at $47.81/b, while the January NYMEX light sweet crude contract was down 44 cents/b (0.97%) at $45.09/b.

The contracts had risen 7.16% and 7.33% respectively in the week ended Nov. 27 in a rally driven primarily by vaccine momentum following reports of promising developments with the Oxford-AstraZeneca vaccine, and the easing political uncertainty in the US due to the start of President-elect Joe Biden's transition process and the nomination of former Federal Reserve chair Janet Yellen as US Treasury Secretary.

However prices receded in morning trade in Asia from the Nov. 27 settlement, with DailyFX strategist Margaret Yang telling S&P Global Platts that "souring sentiment as a result of broad profit-taking activities across Asia-Pacific markets may have contributed to the sell-off in crude."

The sell-off comes ahead of the Dec. 1 OPEC and non-OPEC Ministerial Meeting, which is expected to provide clarity over the alliance's production plan for 2021. The nervousness stems from the market having already priced in a three- to six-month extension of the current 7.7 million b/d production cuts, and anything short of that could see oil prices taking a dive.

"The uncertainties surrounding the delay of a January production hike is a key drag behind crude oil prices [Nov. 30]...a delay in the production hike has long been anticipated by oil traders, and thus seems to have already been baked-in and a failure to reach an agreement may lead to further losses in oil prices," Yang said.

The nervousness was being exacerbated by market talk of emerging fractiousness within the alliance, with Iraq deputy Prime Minister Ali Allawi criticizing the alliance for ignoring members' economic and political conditions before imposing "one size fits all" production quotas, and Nigerian President Muhammadu Buhari imploring the alliance to consider the economic implications of such quotas.

These public grievances aired by its members prompted the Joint Ministerial Monitoring Committee that oversees the OPEC+ agreement to hold last-minute informal online talks on Nov. 29, but no definitive public statements were made.

Analysts continue to note the importance of an extension in cuts to maintaining the supply-demand balance in the oil markets, especially since increasing restrictions in Europe and the US portend badly for oil consumption.

ANZ Research on Nov. 12 calculated the market surplus could be as high as 1.5 million–3 million b/d in the first half of 2021 if the cuts are not extended.