Commodity Blog

Futures for crude oil rallied today even though the result of the OPEC+ meeting was somewhat disappointing.

The group of oil-producing countries collectively known as OPEC+, which includes the Organization of Petroleum Exporting Countries, Russia, and several others, was meeting on Thursday to discuss the extension of oil production cuts. The group has agreed on output curbs several years ago to support oil prices but was planning to slowly reduce the cuts in January of 2021. Yet the second wave of the COVID-19 pandemic threatened to pound oil prices into the ground, making such a move ill-advised.

The OPEC+ should have had a meeting on Tuesday following the preliminary talks on Monday. But the event was unexpectedly rescheduled for Thursday, leading to speculations that the members of the production cut deal have a disagreement. Despite that, markets were counting on the existing output reduction by 7.7 million barrels per day to be extended to at least the end of March. Yet news came out by the end of the trading session that the group decided to roll back the cuts by 500,000 bpd to 7.2 million bpd in January. There was no announcement of longer-term plans.

Analysts speculated that the OPEC+ was comfortable with a small production hike due to the good news about the coronavirus vaccine development. Crude did not have the expected negative reaction to the news. The possible explanation for that was the fact that the reduction of cuts was relatively minor, while markets were fearing a much bigger output hike.

Futures for delivery of WTI crude oil in January gained by $0.39 (0.86%) to $45.67 per barrel as of 21:36 GMT on NYMEX today. Brent crude for delivery in February rallied by $0.49 (1.02%) to $48.74 per barrel on ICE.

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