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Oil Highly Volatile During OPEC+ Meeting

In the morning trade on the first trading session of the new year, oil futures on the New York Mercantile Exchange and the Intercontinental Exchange saw mixed results, with international benchmark backing off overnight highs as traders remain uncertain whether the OPEC+ coalition will leave production quotas unchanged next month, skipping a 500,000 bpd increase amid rising COVID-19 cases and slower-than-expected roll-out of immunization campaigns in the U.S. and the European Union.

Near 10.30 AM ET, NYMEX February West Texas Intermediate futures fell 22cts to trade $48.33 bbl, and ICE March Brent futures rose 28cts to trade just above $52. bbl. NYMEX February ULSD contract rose 0.78cts to trade near 1.4916 gallon. NYMEX RBOB contract for February delivery traded at $1.4067 gallon.

Major economies in the West are seen to have missed their targets for widespread inoculations against COVID-19 at the start of 2021, with France -- one of the hardest hit countries by the pandemic, administering only a few hundred doses so far which compares with tens of thousands in Germany and nearly a million in the United Kingdom. In the U.S., the lack of a unified federal approach towards an immunization campaign created confusion and supply bottlenecks in some states, prompting criticism from top health officials and politicians on both sides of the isle.

The United States has administered nearly three million doses in the final weeks of 2020, according the figures published by the Centers of the Disease Control and Prevention versus the 20 million targeted by the federal government. Meanwhile, China has vaccinated over 4.5 million people and Israel has become the front-runner in the number of doses administered per 100 people.

Additionally, a new strain of the virus found in the UK and South Africa combined with family gatherings during the holiday season are expected to lead to a further rise in COVID-19 cases that pressure hospital capacity, with even Japan and Korea now considering tightening restrictions.

The smooth rollout of the COVID-19 vaccines is seen critical for the fast recovery in global oil demand this year as a persistent surge in hospitalizations and virus-related deaths are likely to dampen mobility and air travel after a pickup in activity in December.

OPEC+ oil ministers are unlikely to shrug off these developments, according to some analysts, with the 23-nation producer group now seen forgoing a 500,000 bpd production increase for February when they meet today. OPEC+ is currently maintaining cuts at 7.2 million bpd, with a 500,000 bpd output hike taking place on Jan. 1.

Russia was the only member of the coalition that has publicly called for production increases in February, arguing that the recent price rally warranted additional supplies on the market.

“To restore our output, that we’ve reduced a lot, the price range of $45 to $55 a barrel is the most optimal,” 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 U.S. have been bringing back production and exports, complicating efforts to rebalance the fragile market.

In what can be seen as some external support for crude, the U.S. dollar continued its decline, falling to the lowest level in 2-1/2 years at 89.425 against the basket of global currencies. The greenback's decline happens as markets are looking forward to this week's run-offs for the two Senate seats in Georgia which will prove pivotal for the balance of power in the U.S. Congress. Democrats will need to win both contests to obtain effective control of the upper chamber and enact their stimulus policies that markets want.

By Liubov Georges for Oilprice.com

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