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Oil edged lower on Monday as the world’s major oil producers discussed extending deep output cuts at talks this week, but benchmark crude ended the month with a strong rally built on hopes that COVID-19 vaccines will soon be available.

Brent crude for January delivery, which expires on Monday, settled at $47.59 a barrel, dropping 59 cents, or 1.2%. The more actively traded February Brent contract was down 37 cents at $47.88.

U.S. West Texas Intermediate crude for January delivery settled at $45.34 a barrel, down 19 cents, or 0.4%.

OPEC members reached a broad consensus on the need to extend existing oil production cuts for three months from January if their allies in the wider OPEC+ group also support such a move, ministers and delegates said.

OPEC warns of ‘immense challenges’ as talks on oil production cuts continue

OPEC warned on Monday that the “immense challenges” caused by the Covid-19 pandemic were likely to persist into 2021, as the group of oil producers continues high-stakes negotiations over an extension to its production cut agreement.
“The shock to the oil industry is massive and its severe impacts will likely reverberate in the years to come,” Abdelmadjid Attar, OPEC president and Algeria’s energy minister, told the group on Monday.
Oil prices, which had been on track to increase by over 20% this month, fell on Monday. 

Current production cuts

OPEC cut an unprecedented 9.8 million barrels per day in May, as the full economic impact of the coronavirus pandemic started to emerge. The group eased the curbs to 7.7 million barrels per day in August, sensing a tepid recovery in global economic activity.
Under the current agreement, the collective curbs are scheduled to taper again to 5.8 million barrels per day from January – but average demand from Asia, a second lockdown in the United Kingdom, new lockdowns in Europe and the worrying trajectory of the virus in the United States have prompted some ministers to advocate for an extension of the current cuts.


Oil demand continues to lag

OPEC expects global oil demand to decline by around 9.8 million barrels per day this year, as the second wave of the pandemic and related lockdowns put a damper on the worldwide appetite for crude. It forecasts global economic growth to slump 4.3 percent.

“The road to recovery is long and bumpy,” Attar said, but added: “There are signs of light at the end of the tunnel.” Next year, the group expects the global economy to return to growth, expanding by an estimated at 4.4 percent. Oil demand growth is forecast at or around 6.1 million barrels per day.

“The brighter outlook for 2021 gives us cautious optimism and is a clear indication that we are on the right path,” Attar added.

Reference: CNBC