The ongoing discussion in the OPEC oil cartel for a new production cut discussion 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 show 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.
The expected outcome of the OPEC+ meeting in Vienna the coming days will be a major disappointment to the market. The main underlying factor 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 powerhouses, 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 fledgeling, 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. The 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+ fledging approach is expected to have the same negative impact soon as already was seen before in March 2020. New price slumps are clearly visible after 1 December 2020.