The OPEC+ Russia relationship is in peril as the world fears that disputes could lead to a new oil production war. Talk that the UAE is asserting itself instead of going along with Saudi Arabia is one of the tensions that is simmering inside the group. The UAE wants to have a bigger share of the global production pie and wants OPEC charters to compensate for previous commitments that were ignored. The drama is putting the oil bull market in jeopardy and if it was not for the fact that the UK approved the first COVID-19 vaccine in the Western world, the oil market might have been hit harder. The UK has become the first country in the world to approve the Pfizer/BioNTech coronavirus vaccine, paving the way for vaccinations starting as early as next week.
Bloomberg News reported on the OPECX Plus drama that drove the oil market uncertainty. “Most nations at Monday’s online session favored deferring the 1.9-million-barrel daily supply increase due to take effect in January by three months. With a new wave of virus infections hitting the global economy, they believe demand is still too fragile to absorb additional crude. But the UAE pushed back, delegates said. Without openly opposing a delay, Energy Minister Suhail Al-Mazrouei insisted on stringent conditions — mainly the speedy implementation of cuts that other members owed in compensation for pumping too much in prior months — that rendered an agreement all but impossible.
In an apparent gesture of frustration, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told the group that he may resign as co-chair of a key OPEC+ panel. Al Mazrouei was offered the post, but refused, according to a person familiar with the situation. Now, the hope is that they can save a deal because the Saudis and the UAE are talking. Still memories of the failed OPEC+ meeting is going to keep the traders on edge.
The oil bull case was not helped by a much larger than expected 4.146-million-barrel increase in crude oil supply as reported by the American Petroleum Institute (API). The increase looked more bearish because of a 3.402-million-barrel increase in gasoline supply. That was also a surprise because as you look across the country, retail gasoline prices have been rising. That retail increase would have suggested increasing demand over the Thanksgiving Day holiday but the increase in gasoline supply makes the market wonder how sustainable that bump in demand will be. Look at the weekly demand number in Today’s Energy Information Administration (EIA) Version. That will give us a clue. It is possible that with a vaccine potentially on the horizon, the gasoline numbers may be bottoming out and we may start to see some growth.
Distillates were a bit boring in comparison as the API reported a 334.000-barrel increase in supply. Still, we believe that with a vaccine on the horizon the seasonal lows for oil should be in assuming that OPEC+ can avoid a production war and agree to extend cuts to help the market get over the hump until a vaccine is starting to be more available. The FDA may approve not only the Pfizer/BioNTech vaccine but also the Moderna (NASDAQ:MRNA) version in what will be a game changer for oil demand expectations.
India is in an energy transition. But not to wind or solar, but from crude oil to natural gas. India’s Petroleum and Natural Gas Minister Dharmendra Pradhan said he plans to reduce crude oil imports by 10 per cent by 2022, and shift India to a natural gas-based economy. Perhaps learning from the U.S. to switch to more natural gas usage and its positive impact on the environment, a natural gas-based economy takes a lot of sense for India. That will also be good for U.S. LNG exports assuming climate czar John Kerry does not shut down U.S. fracking.