The ongoing discussion in the OPEC oil cartel, to meet for a new production cut discussion on December 1 2020 in Vienna, Austria, is not looking to be a boost for the market. Even that there is strong optimism in the market currently pushing WTI and Brent to the highest levels of 2020, breaking almost pre-Corona levels, underlying sentiments and indicators, available to AI-machine learning systems show a clean break potential around the OPEC-meeting.
In several assessments done by VEROCY, in strategic cooperation with NERAI Brussels, a straightforward decline of oil prices is being indicated. Current predictions shown WTI oil prices to be below $40 per barrel at the end of 2020. Specific research is currently settling around $38.50 per barrel for WTI is a steep decline. The same negative development in price is also to be expected for Brent.
Looking at the current drivers of the oil price, as mentioned by analysts and media, the optimism about COVID-19 vaccines, a potential relaxation of lockdowns and the possible smoother change in Washington’s Administration is driving price increases. At the same time, several dramatic shifts in US policies are being indicated by the market, especially with China, and the EU. Biden’s presumed change in US president Trump’s hardline stand towards Iran, Venezuela or Iran is also expected. These factors are however not indicated in the assessments shown by the VEROCY-NERAI approach, assessing over 300 different specific factors at present, showing a dramatic change in oil market related sentiments around the OPEC meeting. Some indicators are already clear to the few, as the COVID-19 optimism is undoubtedly overrated and will have less an impact that is presumed by most. Fledgling vaccine results, the enormous logistical and operational challenges of not only vaccinating but also producing the needed amount, is not yet clearly understood by the markets. For the H1 2021 no real impact of any COVID-19 vaccine is to be expected, while underlying destruction by the virus will continue.
Optimism about oil prices is also to be critically assessed, as demand destruction continues, not only due to current lockdown measures, but a continuing negative push by the 2nd wave of COVID worldwide. Even if a relevant vaccine will be entering the market, no results on the economy of any important order is seen before end of H1 2021. At the same time, negative economic developments are also in place, shown in the ongoing assessments done by VEROCY. The financial situation of most companies is hitting rock bottom, but is not yet clear to the market due to ongoing national or supra-national (EU) financial packages. In 2021 this financial support is going to be slowdown or totally removed in large parts of the OECD countries. A negative economic slowdown, higher unemployment and bankruptcies will be detrimental to a market that is already struggling to find crude oil demand factors.
The expected outcome of the OPEC+ meeting in Vienna the coming days will be a major disappointment to the market. The main underlying factors is that OPEC clearly is not willing to put in place a much stricter and potentially stronger production cut agreement. To continue the current set targets by OPEC+, in which Saudi Arabia and Russia, are the main power houses, is perceived by the assessments of VEROCY-NERAI to be a major destabilization factor. The lack of power or the growing sense of instability in the oil cartel’s power structure is going to be supporting a major negative drive for oil prices. In a market where demand is fledgling, storage volumes are diffuse and fluctuating with a tendency to increase the coming weeks, any additional factor of instability in or around the cartel is going to be seen as very negative. Several OPEC members are already on a collision course with the cartel or showing a substantial increase in production not able to be met by demand.
When looking at longer predictions, first real optimism in the market is not seen before H2 2021. The impact of a new Biden Administration is going to be minimal for months, as the transfer of power and the set up a functional new Biden economic, financial and geopolitical strategy is going to take several months even to be put in place. Implementation of the latter is not going to be easy, as Biden will have to deal with existing Trump legacies. Some indicators are even shown that the Biden Administration will use Trump’s existing strong points as leverage to force change, but spread over a much longer time than seen in the media. A main example is the Trump China policies, which Biden is only going to change partly. An overwhelming part of the USA is supporting the current China policies, maybe only with different semantics or policy statements.
Oil prices are still under pressure, even that optimism has taken its toll right now. With a continuing struggling economic and financial environment, low oil demand, which is still 7-8 million bpd lower than pre-Corona, and storage volumes changes based on political strategies, global movements or refinery runs, which products are put back in storage, no rational optimism is seen that is strong enough to push prices up further. OPEC+ fledgling approach is expected to have the same negative impact soon as already was seen before in March 2020. New price slumps are clearly visible, shown their ugly faces after 1 December 2020.
