Oil prices fall as OPEC cannot agree on production cuts

The price of crude oil fell by 1.5% on Tuesday after reports that the Organization of Petroleum Exporting Countries (OPEC) was unable to reach an agreement to cut oil production for 2021.

Basic analysis: talks to be resumed

The OPEC could not reach an agreement on the extension of the production cuts and has expressed its concern that the serious challenges caused by the coronavirus are likely to extend into 2021.

“The shock to the oil industry is massive and its serious consequences are likely to continue to have an impact in the coming years,” said Abdelmadjid Attar, President of OPEC and Algeria’s Energy Minister.

“The pandemic continues to rage, with cases rising sharply in many regions of the world. It continues to have an unprecedented negative impact on the global economy and thus on world energy markets”.

The group agreed to resume talks on Thursday as negotiators struggled to agree on the amount of oil to be pumped by the group in light of weak demand, Reuters said.

OPEC was originally scheduled to present a plan on Tuesday for the next phase of the launch policy.

The latest OPEC agreement indicates that collective cuts are expected to fall back to 5.8 million barrels per day from January, but factors such as moderate demand in the Asian market, a second nationwide freeze in the UK and other European countries have pushed officials to call for an extension of production cuts.

The Group estimates that demand for oil will fall by approximately BPD 9.8 million in 2020 as the ongoing pandemic continues to affect demand for crude oil.

Technical analysis: prices falling

Crude oil prices closed over 26% higher in November, but trading declined somewhat in early December. The price of Brent crude oil fell by about 0.65% to $47.56, while US West Texas Intermediate (WTI) lost 1.48% and traded near the $44 mark.

Daily Chart of Crude Oil Prices (TradingView)

The price action is trading virtually unchanged today, having been printed this morning at $43.94. A key support line is $43.80 for investors looking to buy crude oil, while key targets for buyers are above the $50 mark.

Summary

OPEC could not agree on the production cuts and warned that the challenges caused by the coronavirus could persist in 2021, which would lead to lower crude oil prices.