The OPEC meeting was postponed, and it was not because of COVID-19. Divisions separate the OPEC cartel, and they had to delay the meeting that was supposed to be a rubber stamp on a three-month extension of cuts. Instead, it boiled over to infighting and pouting! Yes, pouting! Reports said that Saudi Energy Minister Prince Abdulaziz bin Salman said at the OPEC meeting that he would step down as a ministerial monitoring committee’s co-chair, causing a drop in the oil price.
Reuters reported that the group and Russia had been due to ease existing production cuts by 2 million barrels per day (bpd) from January. But with demand still under pressure amid the coronavirus pandemic, OPEC+ has been considering extending existing cuts of 7.7 million bpd, about 8% of the global market, into the first months of 2021, a position backed by Saudi Arabia, sources said.
Yet resistance from the UAE, who has shown displeasure with Saudi leadership, seemed unhappy with its percentage of cuts. According to OPEC’s Monthly Oil Market Report, the UAE either met or exceeded its 2.59 million bpd quota in September and October, but fell short of its goal in August according to Oil Price.
Other members are also looking at the increasing output from Libya, costing some market share. Some are still worried about U.S. shale producers even though they are probably years away from being a threat. Yet this OPEC infighting is petty because the cartel and Russia have done a fantastic job with compliance and by reducing the global oil glut to a point where we could see short supply after a Covid vaccine begins to be distributed.
This comes as people start to talk about a record short oil position that could create a short squeeze if they have to exit. Traders have been betting against oil because they doubted the resolve of OPEC Plus Russia, and they doubted that Project Warp Speed would yield results. Yet as demand for oil is rising, and a vaccine is on the horizon, it could cause a big rally.
Bloomberg News reported that, “A group of oil traders whose positions are often overlooked by much of the market has quietly built up a massive bet on lower crude prices. Traders categorized as “other reportables “by regulators and exchanges now hold a record short position of almost 470,000 Brent futures contracts, according to ICE (NYSE:ICE) Futures Europe data. The grouping covers entities whose business activity is unknown from publicly-available information, or who don’t fit the other main reporting categories of dealer, speculator, producer or consumer. High-frequency traders and proprietary trading houses would be included. Their bearish bet, equivalent to 470 million barrels of oil, is in direct contrast to traditional speculators. Last week they boosted their net-bullish Brent oil wagers to a nine-month high.
If OPEC does extend cuts, we should see those shorts cover. The trend is against the shorts, and as the fundamentals continue to improve, we should be setting the stage for a seasonal rally. We are looking for draws in oil and products in tonight’s American Petroleum Institute report.
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