Week Ahead - OPEC & Brexit In Focus

Barnier told MEPs in a private meeting on Friday that he would work through the weekend and then “maybe one or two more days” in a last-ditch attempt to bridge the large gaps between the sides

- The Guardian

Britain could be just seven days away from leaving the European Union without a trade deal, Downing Street warned on Saturday night.

In a candid assessment issued "at the start of what may be the final week of trade negotiations", Number 10 warned that a "significant gap" still exists on fisheries, adding: "No deal is arguably underpriced."

- Telegraph

There is currently no call scheduled between UK Prime Minister Boris Johnson and EU Commission president Ursula von der Leyen, a UK source told Reuters, after the Times newspaper reported the pair would speak in the next 48 hours.

The first sign of movement -- either towards a deal or that talks are crumbling -- is likely to be a call between Johnson and von der Leyen.

The Times also reported that the European Commission has started to “lean on” EU negotiator Michel Barnier to reach a deal with Britain, raising hopes that an agreement could come.

Both sides said on Friday that there were still big differences to overcome, as they both called for the other to compromise on the three main issues of contention - fishing, state aid and how to resolve any future disputes.

Johnson talked of “substantial and important differences”, while Barnier referred to “significant divergences”.

 Right. What a week in #Brexit. First talk of Barnier pulling the plug; and today a big flap over fish. So where are we as M. Barnier boards the Eurostar for London? Well, you guessed it - still stuck on the fundamentals. Why? Well, here's what I know. 1/Thread— Peter Foster (@pmdfoster) November 27, 2020 

 Is there a way out? Well there is, but both sides seem to think we'll get there by the other folding.

The UK, by running down the clock, thinks the EU will ultimately accept there is a limit how much of a control-freak it can be. It will fudge a deal as it always does/13— Peter Foster (@pmdfoster) November 27, 2020 

Unless these two holdouts drop their veto on the deal within days, France warned of severe and potentially existential disruption to the 27-nation bloc still coping with Brexit. The alarm came at a meeting of EU envoys in Brussels on Friday, when Polish and Hungarian ambassadors dug in. They object to the disbursement of 1.8 trillion-euros ($2.2 trillion) being tied to democratic standards they are accused of falling short of.

The European Commission’s representative said that if no breakthrough is reached by Dec. 7, then the EU will have to operate via monthly emergency budgets as of the start of 2021. That would mean financial paralysis and the progressive suspension of all but essential spending.

“I reiterated that Poland is prepared to veto the new budget unless the solution that is good for the whole EU, and not just some of its members, is found,” Polish Prime Minister Mateusz Morawiecki wrote in a Facebook post after speaking with Germany’s Chancellor Angela Merkel.

The defiant comments came as the French ambassador in the non-public meeting was warning that the quarrel could signal a “fundamental rupture,” which raises questions about the very future of the EU, according to two diplomats present in the conversation.

Still, some officials remain confident that a compromise is the likeliest scenario and that the current situation is a game of who will blink first.

When it comes down to it, there will be flexibility on both sides given how much is at stake, according to a person in Merkel’s coalition familiar with the discussions, who also said the chancellor is personally involved in trying to solve the standoff.

While the remaining EU countries have made it clear a possible compromise will not change the substance of the rule-of-law mechanism, officials are looking into other ways to give Hungary and Poland an honorable way to back down from a position deemed to be untenable.

Two EU officials view the situation as serious and as a major topic in December’s summit. They are also reading the political tea leaves, and see Orban seeking to drag things out so that any outcome only comes into force after 2022 parliamentary elections.

Merkel and her negotiating skills as a veteran leader are seen as key, the officials say, even as she will be serving out her final term as chancellor.

Russia and Saudi Arabia, the largest oil producers in the OPEC+ deal, generally adhere to a consolidated stance on extending the current level of oil output cuts in the first months of 2021, two sources in the organization told TASS on Sunday.

One of the sources noted that "there is a consensus between Russia and Saudi Arabia." Another source confirmed this information but pointed out that the sides still had to coordinate "certain details and the mechanism" of extension.

In private, OPEC+ delegates talk about the imbalance in the recovery, both geographically and between refined products. Increasingly too, they talk about another segmentation: crude oil quality.

The market for the denser more sulfurous crude, called heavy-sour, is tight, mostly due to production cuts from Saudi Arabia, Russia and other big producers.

But the market for so-called light-sweet is glutted, in part because Libyan barrels have come back to the market after a ceasefire, and European refiners are consuming less North Sea crude.

All those factors make the deliberations of OPEC+ ministers trickier. And they have just one blunt tool at their disposal: raising or cutting overall production. OPEC+ nations do not target gasoline or jet-fuel production, but just crude.

There’s also a geographical handicap: most of their oil goes to Asia, where demand is strong, rather than Europe and America, where it’s weaker. That means they can do little to address the glut where it matters. Even the quality is a problem: OPEC pumps mostly heavy-sour crude, and can do relatively little to trim the excess of light-sweet crude.

There is some consolation. While the recovery in oil demand that started in May stuttered in October and November as the second wave took hold, it wasn’t the same hit to the market as earlier this year. The lockdowns in Europe aren’t as severe as the first wave, and demand in Asia is surging -- not just in China, but also in India, Japan and South Korea.

High frequency data for road usage shows a decline in early November of about 30% from pre-Covid levels, compared to nearly 70% in late March and early April, according to an index compiled by Bloomberg News.

The most recent data suggests that road fuel demand bottomed out around Nov. 15, and has been recovering since. With European nations easing lockdowns in the run-up to Christmas, demand is likely to recover further

US Federal Reserve chair Jay Powell will be in the limelight when he testifies, along with treasury secretary Steven Mnuchin, before the Senate Banking Committee on Tuesday and a day later before the House Financial Services Committee, in a quarterly appearance to discuss the CARES Act.

 RBC also sees month-end $USD selling "as equity managers add to short-USD hedges in line with increased value of US equity holdings"

Given TG holidays however, it is likely that some of those flows went through early last week where we did see a fair bit of $USD selling.— DoejiStar (@DoejiStar) November 29, 2020