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There was enough concern in the ranks for the OPEC+ de facto steering committee comprised of Russia and Saudi Arabia energy ministers to call an informal consultation for the Joint Ministerial Monitoring Committee (JMMC) via video call on Saturday ahead of today’s OPEC+ gathering. But to no avail, as a public statement supporting a current quota extension remains elusive.

With no definitive pre +OPEC meeting guidance to the pilot markets, caution is warranted ahead of the meeting’s conclusion. The recent oil-price rally may have reduced OPEC’s sense of urgency.

With signs of disharmony within the group, there is a possibility the OPEC+ meeting will fall short of those expectations. An extension still seems the most likely outcome, but risk/reward is skewed to the downside as oil is unlikely to move up meaningfully (recent post highs) if an extension is announced.

After a fairly patchy and extremely illiquid 48 hours heading into the weekend, traders began to question the base case of a three-month supply-cut extension, which may largely be priced in already, suggesting unchanged prices on an agreement as expected, or a downside of -10% on OPEC+ failure to agree.

Nevertheless, both WTI and Brent finished up about 8% and 7% last week, respectively, posting the fourth straight week of gains.

OPEC+ actions will be key

OPEC+’s two-year-long strategic agreement aligns the group’s production silhouette with demand while ensuring that the alliance continues to supply half of the world’s needed barrels—in line with its market share, simultaneously drawing down inventories.

After supply-dominated price dynamics over the previous business cycle, COVID-19 containment measures have turned demand into the market’s dominant driver, and this will continue to be the case until a successful vaccine is fully rolled out around the globe.

Consolidation

Consolidation has set in after a strong rise in crude prices over the past 2-3 weeks, and Thanksgiving holidays also reduce volumes. Still, traders remain constructive on oil markets recovery, but inventories have yet to come down to normal levels.

OPEC+ spare capacity is at historically high levels, with 2021 needed to deliver considerable demand improvement. Indeed, a successful vaccine rollout program will snap the nasty for oil price correlation between infection and mobility.

After the recent oil price weakness, the Brent curve’s front has moved back to contango, but the backwardation in Q3 2021 remains. Where the two grades differ is in the shape of the curve for 2022. While the Brent curve returns to contango early in 2022, WTI is backward until late 2023. Expectations for the two grades are therefore very different.

Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi