DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the first trading day of 2021 lower after the Organization of the Petroleum Exporting Countries and their partners delayed a decision on production quotas for February until Tuesday, with familiar discord between Russia and Saudi Arabia again prompting continued discussions on future production levels for the 23-nation bloc.

On the session, NYMEX February West Texas Intermediate futures declined $0.90 or 2.3% to settle at $47.62 barrel (bbl), with losses accelerating post-settlement. International crude benchmark for March delivery fell $0.71 with the Brent contract settling just above $51 bbl. Both crude contracts traded as much as 5% higher earlier in the session. NYMEX February ULSD contract shed 2.2 cents to settle at $1.4620 gallon, while the RBOB contract for February fell nearly 4 cents for a $1.3729 gallon settlement.

Both crude contacts nosedived in afternoon trade Monday after reports emerged that Russia, the United Arab Emirates and Kazakhstan backed a 500,000 barrels per day (bpd) increase in oil output for February from current production cuts of 7.2 million bpd, which follows a 500,000 bpd production hike that took effect Jan. 1. The additional output would add to a well-supplied market that is now contending with a global resurgence of COVID-19 infections.

Recent data from the European Union and United States indicate the long-awaited rollout of coronavirus vaccines that began in December has not been as smooth as expected, with France and Germany both well behind their immunization targets. United Kingdom, the epicenter of a new virus variant, has tightened quarantine restrictions in recent days, with Scotland in full lockdown through at least the end of January, sharply reducing any chance of economic revival during the winter months. Domestically, hospitalizations for individuals infected with COVID-19 recorded an all-time high on Sunday (1/3/21) with 150,000 patients admitted to U.S. hospitals, according to data from the Centers for Disease Control and Prevention.

Against this backdrop, Saudi Arabia has pushed back against a second monthly output hike, telling OPEC and coalition members not to hurt a "fragile market recovery."

"When historians look back at 2020 we hope they will write a big chapter on the success of OPEC+," said Saudi Energy Minister Prince Abdulaziz bin Salman at the start of Monday's producer meeting, adding however that "global oil demand is still well short of where it was in the beginning of last year. The job is not yet done."

Russia requires oil to be priced at $40 bbl to balance its budget, while Saudi Arabia, Iraq and Nigeria need to sell their barrels above $80 bbl to meet obligations for public salaries.

However, coalition members could lose market share absent a production hike, with current global oil prices above breakeven an incentive for some producers outside OPEC+ to ramp up their output.

"To restore our output, that we've reduced a lot, the price range of $45 to $55 a barrel is the most optimal," Russian Deputy Prime Minister Alexander Novak told reporters in Moscow. "Otherwise we'll never restore production, others will restore it."

To Novak's point, countries like Libya, Iran and the United States have already ramped up output, with OPEC members Libya and Iran exempt from the production agreement.

In outside markets, the safe-haven U.S. dollar continued its decline to the lowest trade in more than 2-1/2 years against basket of foreign currencies at 89.390, lending some support for the WTI contract. The greenback's decline comes ahead of this week's runoff elections in Georgia for two Senate seats, which will prove pivotal for the balance of power in the upper chamber. Democrats will need to win both contests to obtain effective control of the Senate and enact their stimulus policies.

Stocks on Wall Street retreated from all-time highs on Monday, sending Dow Jones Industrials down as much as 700 points before paring the loss to a little more than 380 points, while the S&P 500 and NASDAQ both declined 1.5%.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com