Having started the week on a bullish note, oil slid on Tuesday, as the US dollar held the ground ahead of the Fed meeting, and OPEC said oil demand would grow less than previously expected in 2021.

The cartel sharply slashed demand estimates for 2021 in its latest outlook, from 6.25 million bpd to 5.9 million bpd. Among the factors that will slow and limit recovery of demand, the organization mentioned mild winter, increasing fuel efficiency, advance of alternative energy sources, and removal of energy subsidies.

Oil demand forecast for 1Q of 2021 has been revised down sharply by 1 million bpd, potentially indicating that OPEC should remain cautious in boosting output in first quarter of 2021. The final forecast for demand for 2020 showed that demand has contracted by 9.77 million bpd YoY against 9.75 million bpd from the previous forecast. The meeting of the OPEC monitoring committee was postponed from next week to January 3-4.

Nonetheless, the EIA report showed that rivalry from US oil producers should not be expected to return quickly. Based on the agency's latest oil outlook, output in the US will decline by 137K bpd to 7.44 million bpd in January 2021. In this month, oil production is expected to drop by 125K bpd. Thus, in January production will drop to its lowest level in 6 months, despite the fact that prices have already risen to $ 47 per barrel, which should be a comfortable price level for US oil producers. The underinvestment, which has only intensified due to the pandemic, is the key to understanding why recovery is so slow in the US oil industry. Recall that the average breakeven price for US shale oil is estimated at $45-50 per barrel. According to the agency's report, the number of drilling rigs in November averaged to 334 units (-670 YoY, +18 MoM).

The FX market is expected to remain calm today, with USD playing defense ahead of the Fed meeting, staying above the key support level at 90.50. The second test of the level failed yesterday as the market awaits bearish hints from Congress and the Fed before resuming decline:

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