Oil slid as lingering tension among OPEC producers highlighted the uncertainty surrounding a delay to the group’s planned output increase.
Futures declined as much as 1.5% in New York on Tuesday, reversing an earlier gain. Informal talks will continue by phone after OPEC+ shifted its final meeting by two days to Thursday to allow for more time to reach a deal on production policy.
Friction between Saudi Arabia and the United Arab Emirates prevented what was widely expected to be a routine agreement to delay an output increase scheduled for January.
“Oil prices are coming under modest selling pressure this morning as traders and analysts grapple with the OPEC+ discord as well as first of month fund flows,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “This setup is eerily familiar to the early March meeting that resulted in a short-lived price and volume war initiated by Saudi Arabia after no consensus could be reached on production quotas.”
With cracks appearing in the OPEC+ alliance, Saudi Energy Minister Prince Abdulaziz bin Salman signaled his dissatisfaction by threatening to resign as co-chair of a committee that oversees the output deal. The eroding unity among the group comes at a time when the market may struggle to absorb more barrels, with demand still weak due to the pandemic.
West Texas Intermediate crude for January delivery lost 54 cents to $44.80 a barrel at 10:15 a.m. in New York, while Brent for February settlement slid 39 cents to $47.49 a barrel
OPEC+ is likely to agree on a face-saving compromise, with a short extension the probable outcome followed by a phased return of production, RBC Capital Markets analyst Helima Croft wrote in a report.
If an agreement isn’t reached and cuts are eased as scheduled, Brent prices are at risk of dropping back toward $40 and the market could face an oversupply of as much as 2 million barrels a day next quarter, Wood Mackenzie Ltd. said.