Oil fell from an eight-month high as cracks appear among some OPEC+ members days before a key policy meeting to discuss delaying the end of output curbs.
Futures fell 1.6% in New York. Iraq’s deputy leader this week criticized OPEC, saying the economic and political conditions of member countries should be considered before they are asked to withhold production. OPEC’s president said Thursday the group must remain cautious, with internal data pointing to the risk of a new oil surplus early next year. Most of the production that was cut under an agreement earlier this year has already been brought back.
While an extension of existing cuts is expected, the recent oil rally gives leverage to members reluctant to go along, including Iraq and the United Arab Emirates, Standard Chartered’s Paul Horsnell wrote in a note. Trading on Thursday was light due to the U.S. Thanksgiving holiday.
“The post-vaccine announcements and post-U.S. Election oil price rally is a mixed blessing for Saudi Arabia and its main ally in oil policy, Kuwait,” Horsnell said. “The rally has increased special pleading from the more reluctant members of OPEC+.”
Oil has jumped 26% this month after signs that COVID-19 vaccines are imminent boosted expectations for a swift recovery in energy demand next year. However, while there are indications that Asian consumption remains healthy, Europe is still lagging.
On Wednesday, Germany extended a partial lockdown to curb the spread of coronavirus for at least three more weeks. After a sharp rise in prices, both West Texas Intermediate and Brent crude futures settled technically overbought on Wednesday, a sign that a possible reversal had been on the cards.
Crude’s rapid price gains this month has added to OPEC+ member Russia’s concern that U.S. Shale producers will be able to resume production growth, disrupting the group’s efforts to ease a supply glut. The group will delay an output increase by three months, according to a survey of oil analysts, traders and refiners.
In the meantime, a strike in Norway could threaten some oil and gas production. If a long running safety guard strike isn’t resolved before the weekend, two of the country’s fields may have to stop flows.
—With assistance from James Thornhill.