Oil prices are largely stable on Wednesday as the market avoids leaning heavily on positive vaccine news, waiting for the next day’s crucial OPEC+ meeting instead.
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The OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Djeno (Congo), Zafiro (Equatorial Guinea), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).
Oil prices are largely unchanged Wednesday as bearish new of a projected crude stocks build-up in the US got matched by bullish news of the first approval of a COVID-19 vaccine in the UK, said Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen.
“But even so, traders would not take huge gambles today, as they are waiting for the final verdict of Thursday’s OPEC+ meeting. What the alliance decided to do from January could shake markets and no trader wants to be too quick today before a definite indication,” said Tonhaugen.
He added, “If OPEC+ decides to delay its planned oil output increase, it will provide a great relief to the market and that is bound to definitely help prices rise. Although trader confidence priced in such a decision way before the meeting, there is still room for euphoria if the hopes get met with action.
“Some of the earlier gains are also now reversed after Monday’s first meeting turbulence, so a positive effect on prices can be even more profound if OPEC+ does what’s expected and finds a consensus to keep production stable.”
Tonhaugen said: “Should the current differences weigh heavily on the negotiation table and the alliance is forced to increase production by about 1.9 million bpd as planned, we can expect the market to get a serious hit and prices to become a punchbag again.
“As there is a lot at stake, the OPEC+ decision does not look like it will go unnoticed, the effect will not be muted. Traders expect it either very positive or the opposite. And when stakes are so high, it is dangerous to move prices much ahead of such decisions, even on the news of the Pfizer vaccine approval in the US.”
Looking at the bigger picture, the real action in the market will be tomorrow and prices may face volatility from early on, as first reports of the meetings discussions surface.
Traders will be looking for officials’ statements and leaks of disagreements -or a consensus, he said.
“And as disagreements get resolved or a consensus gets back in trouble it will not be out of question to see prices moving from gains to losses and back. Volatility is the word tomorrow and that’s why today’s muted price reaction is like the calm before the storm,” added Tonhaugen.
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