Oil prices fell about 2 per cent on Tuesday as investors awaited direction from OPEC and its allies after the producers postponed a formal meeting to decide whether to lift output from January.
Brent crude was down 75 cents at $47.13 a barrel by 11:04 a.m. ET and West Texas Intermediate was down $1.08 at $44.26.
Both contracts surged around 27 per cent in November, pushed up by hopes that COVID-19 vaccines would boost the global economy and fuel demand, and aided by expectations that oil producers would keep a tight rein on output amid a new wave of the virus.
The Organization of the Petroleum Exporting Countries, Russia and other allies, a group known as OPEC+, delayed talks on next year’s output policy to Thursday from Tuesday, as the main players had yet to agree, sources said.
“The apparent glitches in the OPEC discussions that have forced a delay in the full OPEC+ zoom meetings until Thursday have stalled the upward oil price momentum that proved quite impressive last month,” said Jim Ritterbusch, president of Ritterbusch and Associates.
“Such a strong rally over a short-term period resulted in an overbought technical condition that goes a long way in explaining the price downdraft of the past couple of sessions.”
The group was due to ease current production cuts of 7.7 million barrels per day (bpd) by 2 million bpd from January.
With demand still weak, OPEC+ has been considering extending existing cuts of about 8 per cent of global demand into the first months of 2021, a position backed by de facto OPEC leader Saudi Arabia, sources say. Russia, meanwhile, backs a gradual increase.
“The group will probably find some face-saving compromise, with a short extension being the most likely outcome followed by a phased production return,” said Helima Croft at Royal Bank of Canada.
“Nonetheless this latest fracas does not bode well for collective cohesion in 2021 as vaccine optimism abounds and producers anticipate a strong recovery,” Croft added.
A Reuters poll of 40 economists and analysts forecast Brent would average $49.35 a barrel next year.
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