The crude markets’ reaction to the headline was of a “cut and run” variety as WTI slid back below $45/barrel. How to interpret the rumour is open for debate.

Sure, it could be a bargaining ploy, but it screams of discord within the ranks at a level far greater than most had believed. And unquestionably brings future compliance into question.

The fact this spat has the entire oil complex sitting on the edge of a razor blade in the face of a second wave COVID-19 lockdown demand slump is particularly problematic for the global oil complex.

And all this noise strongly suggests that since the Russia/Saudi Arabia price war, this is one of the most contentious OPEC meetings with UAE fiercely opposing an extension and the killing of Iran’s most senior nuclear scientist, all suggest reaching an agreement will be difficult.

Algeria’s oil minister’s opening speech notes OPEC expects a limited impact from Covid-19 vaccines until H2 2021 and sees Q1 demand remaining subdued.

OPEC’s Economic Commission Board said last week that proceeding with the plan to ramp oil production up by 1.9mb/d from January 2021 would mean a Q1 surplus of about 200kb/d. OPEC’s Q1 demand estimate is significantly more pessimistic than some of the big oil traders.

Even though it is too early to draw any conclusions, and even before the Saudi headline broke, Oil remained under top-side selling pressure on any push above Brent $48.

The market is hopeful the disharmony in the ranks is resolved during the formal meeting today. Still, traders remain doubtful that an extension of current cuts would be a significant positive catalyst given it is already baked into consensus.

November’s scintillating rally has made it difficult for some OPEC members to accept continuing these curbs. The bullish move in the forward curve has made it especially hard.

Last week the front of the Brent curve moved into backwardation, indicating the market is short supplied. Both WTI and Brent remain in backwardation from July 2021.

However, OPEC’s demand estimates for 2021 are not encouraging. As demand growth has faltered, the group’s expectations are now of minimal drawdown for next year’s stocks.

Oil has sold off a bit since last Friday despite the increase in regional geopolitical tension following last week’s attacks on Saudi oil infrastructure, retaliatory strikes by Saudi against Houthi camps, and the killing of an Iranian nuclear scientist over the weekend.

Confirmation of a delay to the planned OPEC+ production increase would likely see oil recover to recent highs. Still, there is a downside to Brent ~$44/b or lower if the apparent dissent within OPEC results in a deferral of the cut decision.

Mexico’s Pemex will soon be starting to hedge its oil exposure for 2021, according to Reuters. Pemex’s hedge is separate and much smaller than the “Hacienda hedge” contracted annually by Mexico’s finance ministry.

Every year the government buys about USD1 billion in financial contracts to protect revenues. But the oil giant had two very successful years of profits from its oil hedges. Pemex has received USD377.3 million from its 2020 hedge and USD369 million from the 2019 hedge, which could also be pressuring top side ambitions of oil this week.

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