Oil dropped to near US$45 a barrel as a consensus within OPEC+ to postpone an output hike planned for January remained elusive ahead of a meeting of the cartel’s power brokers later on Monday.

Futures in New York declined 0.8 per cent, paring some earlier losses as Moderna Inc. sought clearance for its Covid-19 vaccine in the U.S. and Europe. Most participants in an informal online gathering of OPEC+ ministers on Sunday supported keeping production curbs at current levels into the first quarter, said one delegate, although there was opposition from the United Arab Emirates and Kazakhstan.

Oil is still set for the biggest monthly gain since May as Covid-19 vaccine breakthroughs raised optimism for a long-term rebound in fuel consumption. Yet failure by OPEC+ to agree on extending output curbs would see producers restore about 1.9 million barrels a day in supply, potentially pushing the global market back into surplus.

While a majority of OPEC-watchers are expecting a three-month delay to the planned output increase, a recent price rally may complicate talks. Some producers such as Iraq -- which is seeking cash upfront for a long-term crude-supply contract -- are keen to pump more.

“It looks like classic OPEC+,” said Jens Pedersen, senior analyst at Danske Bank. “We are headed for a couple of days of drama before the group eventually will settle on some form of delay of output hike.”

Prices

  • West Texas Intermediate crude for January delivery fell 37 cents to US$45.16 a barrel as of 8:29 a.m. New York time
  • Prices are up about 25 per cent this month
  • Brent for January settlement slid 1 per cent to US$47.68

Vaccine optimism is also having an impact on oil’s forward curve. Brent’s prompt timespread flipped into backwardation at the start of last week -- a sign that concerns about oversupply have eased -- although it moved back into contango on Friday.

“With the strong rally we have seen in the flat price and timespreads more recently, I am sure some members would question: why roll over cuts?” said Warren Patterson, head of commodities strategy at ING Group. “If Brent were still trading closer to US$40, I think there would be less hesitation, as it would be pretty clear that OPEC+ needs to do more.”

China is continuing its robust rebound from the virus-induced crash. An official gauge of manufacturing activity rose faster that expected in November, while at least one fuel supplier is gearing up for an expected surge in air travel ahead of the Lunar New Year holiday in February. However, Indian diesel sales are slipping again, with a festive-season demand boost proving fleeting.

The Middle East, meanwhile, is once again seeing rising tensions. A refinery in Iraq’s north was hit by a rocket, causing a fire, according to Al-Arabiya television. That comes after Iran accused Israel and the U.S. of being behind the assassination of one of its top nuclear scientists Friday, vowing revenge.

--With assistance from Ann Koh.