04.12.2020
Market commentary on heating oil 04.12.2020
After lengthy and tough negotiations, OPEC (Organization of the Petroleum Exporting Countries) and 10 cooperating production countries have managed to reach a compromise.
While industry leader Saudi Arabia would have preferred to simply extend the current production cuts for another three months, countries such as the United Arab Emirates leaned toward increasing daily production by 2 million barrels starting January 1, 2021. Even though the pandemic-induced economic slump is slowly but surely easing thanks to promising developments on the vaccine front, such an increase in output would most likely have caused prices to drop sharply in the short term. This, in turn, could have encouraged countries like Iraq, Iran, and Libya — which have not always strictly adhered to their quotas in recent months — to become even less disciplined. The new agreement is to raise output by 500,000 barrels per day in January, with monthly reassessments to determine further steps. The market initially reacted with euphoria to the latest development; gasoil prices on the London commodity exchange ICE surged to their highest level since March 6 of this year. Since then, the situation has calmed somewhat, as concerns over persistently high inventory levels continue to weigh on sentiment in the short term.