Oil futures: Crude prices fall 2% over fractures in OPEC+ alliance
Quantum Commodity Intelligence – Crude oil futures Wednesday were in sharp retreat, amid concerns that the fragile OPEC+ alliance may be splintering over disagreements on production cuts and baseline levels for quotas.
Front-month Jan24 ICE Brent futures were trading at $80.87/b (1800 GMT), compared to Tuesday's settle of $82.45/b, wiping out half of the solid gains since Friday's rally.
At the same time, Jan24 NYMEX WTI was trading $76.07/b versus Tuesday's settle of $77.77/b, with profit-taking and position closing also seen ahead of the Thanksgiving holiday.
Consensus had been growing towards deeper OPEC+ cuts when the group meets Sunday, but internal strife within the 23-member group could derail any plans for further reductions, with possible dissent over which producers will make the cuts and ongoing disagreements on baseline levels.
The UAE was reportedly unwilling to consider further cuts, with its production already significantly below capacity, while Angola's minister has cancelled plans to attend the Vienna meeting.
Reports from the Kingdom also suggest Saudi Arabia is unhappy at the level of support from other members, with Sunday's planned meeting rescheduled to 30 November.
Prior to Wednesday's selloff, markets had been largely been moving sideways to lower the last 24 hours as expectations moved towards further OPEC+ cuts.
"We see some scope for the group to do a deeper reduction. We would anticipate that Saudi Arabia would seek additional barrels from other members to share the burden of the adjustment," said RBC Capital's Helima Croft.
But the producer group also has to navigate increasing non-OPEC supplies, particularly from the Americas, along with faltering global economic growth.
Speculators
OPEC has also blamed the November price tumble on 'speculators', with the latest exchange data revealing a further selloff from financial players. Selling was particularly focused on WTI crude, where net length has slid for seven straight weeks amid record US output.
"Aggregate net long positions in WTI and Brent dropped to their lowest level since early July. They have halved since peaking in mid-September. The decline during this period equates to sales of a good 270 million barrels via the futures market," said Carsten Fritsch of Commerzbank.
"From a Saudi Arabian perspective, expanding oil production would retrospectively reward these speculators. And yet Saudi Arabia was always keen in the past to punish speculation in falling oil prices if this did not tally in its view with the fundamental data," added Fritsch.
Market reaction to the latest data from the American Petroleum Institute was muted despite the 9 million barrel rise in crude stocks, way above expectations of under 2 million barrels, with OPEC taking focus away from inventories. However, if EIA data released later Wednesday shows a similar build, then bearish sentiment could take hold.
Traders said the API crude build was in part offset by a 1.8 million barrel drop in gasoline inventories and a 3.5 million barrel draw on distillate stocks.
