Month in brief

• Published date: 01 January 2020
• Date: 01 January 2020
• DOI: http://doi.org/10.1111/oet.12751

THE MONTH IN BRIEF

Month in brief

Crude prices rallied through December, rising from just

over $60/bbl at the start of the month to peak at $66.87/

bbl on December 27—the highest since late May. In

the first week of the month, crude gained ground on

indications that the OPEC-plus group would approve

deeper production cuts at their meeting in Vienna on

December 12. Data showed OPEC had already been pro-

ducing well below quota in November at 29.65 mn bpd;

or 145% compliance for those 11 members with quotas,

with Nigeria the only major producer still above its

allowance. There was further support early in December

from a larger than forecast drop in US crude stockpiles.

Then on Friday December 6, the decision was

announced to shave a further 503 000 bpd from the exis-

ting 1.2 mn bpd OPEC-plus deal (signed in December

2018). Saudi Arabia is to shoulder most of the burden,

extending cuts by a further 400 000 bpd—although this is

not far off its current output. In fact, given current pro-

duction levels, analysts pointed out that implementation

of the deal would only actually mean a small additional

production cut in practise—although it was still enough

to support prices. The deal also allowed Russia to exclude

condensate from production quota, which amounts to

around 600,000 bpd. The OPEC-plus coalition is to meet

again in the first week of March to review the agreement

and extend it, if warranted, through the rest of 2020.

The news pushed Brent close to $65/barrel on Friday

December 6, and the deal dominated sentiment through-

out the following week. While there were some reserva-

tions about ensuring compliance from members like

Nigeria and Iraq, along with the Russian condensate

exemption, the market generally accepted the deal as

decisive and significant, with prices moving above $65/

barrel by the end of the week (December 13). Develop-

ments in the United States-China trade dispute were also

a significant influence on prices, leading to some weak-

ness midweek, before helping support prices into the fol-

lowing week as news turned positive.

By December 17, both Brent and WTI had reached a

three-month high, and further positive comments and

developments in the trade dispute (including the removal

of China's 5% tariff on US oil products/chemicals, but not

crude) maintained support for prices towards the end of

the pre-Christmas week. A combination of the increased

OPEC-plus cuts and positive United Staes/China trade

deal news reportedly drew some speculative investors

back into the market in anticipation of tighter supply and

demand fundamentals in 2020. However, Friday 20 saw

prices edge back down amid pre-holiday profit taking

and weaker demand growth outlooks.

The last week of the year saw prices edge up further,

with sentiment more bullish than for some time due to

indications of compliance with the OPEC-plus deal and

the prospect of slower non-OPEC growth in 2020, as well

as signs that economic growth may hold up better than

had been feared. However, downside risks remain, with

the IEA still forecasting a supply surplus in the first quar-

ter, and the last couple of days of the month saw Brent

prices ease back to close the decade at $66/bbl.

How to cite this article: Month in brief. Oil and

Energy Trends. 2020;45:7. https://doi.org/10.1111/

oet.12751

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