Oil prices fell yesterday and the US dollar held onto most of its gains achieved overnight, as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) seek to reach a consensus on additional production cuts.
The US dollar fell slightly against the Japanese yen, which strengthened to 146.79 against the US yen, from 147.19 on Monday, according to AFP. Furthermore, the Organization may decide to continue these reductions until 2024 if necessary.
Across the Atlantic, the US dollar rose against both the pound sterling and the euro. The euro lost $0.0032, from $1.0839 to $1.0807, and sterling fell from $1.2632 to $1.2614. Meanwhile, the Bloomberg US dollar index fell 0.03%, to 103.6860, as oil prices rose slightly. Brent crude futures fell $0.01 to $78.02 a barrel, while West Texas Intermediate crude futures rose $0.05 to $73.09 a barrel. AFP reported that both benchmark crudes rose more than 0.2 percent in early trading sessions. Brent crude rose 0.2 percent to $78.22 a barrel, and US West Texas Intermediate crude rose 0.3 percent to $73.22 a barrel.
Overall, Brent crude settled above $78 a barrel, Bloomberg reported, having risen more than 6% in the three sessions before Tuesday, while WTI settled above $73. Saudi Energy Minister Prince Abdulaziz bin Salman told that the additional cuts would “overcome” the expected increase in inventories in the first quarter. Furthermore, the Organization may decide to continue these reductions until 2024 if necessary.
OPEC+ Impact, Oil Challenges and US Energy Pledges
Members of the OPEC+ group continue to insist that the 2024 production targets set last week will have an impact on oil markets, only to receive lukewarm recognition from market participants. The rebound in the US refining sector last week is likely to trigger some more upward momentum than Saudi Arabia or Russia, where Brent crude is currently trading at $79 per barrel, although the continued influx of weak macroeconomic data limits the uptrend for now.
The second draft of the COP28 final agreement distributed among participants shows that the summit is considering the call for the “orderly and equitable” phase-out of fossil fuels, although COP27’s call for a “relentless” phase-out of fossil fuels may prevail again..
Brazilian President Lula da Silva said his country would never become a full member of OPEC and only seek an observer role in the group, claiming that Brazil wants to influence the policy of the world’s largest oil producers..
The United States vows to accelerate the replenishment of the Strategic Oil Reserve. The US Department of Energy announced that it will accelerate the process of buying back 4 million barrels of oil to the Strategic Petroleum Reserve by February 2024 instead of next summer, raising it from the current level of 351.6 million barrels.
Japan is calling for expanding its strategic LNG stockpile. Japanese energy utility companies have called for increasing strategic stocks of liquefied natural gas (LNG) to expand the country’s reserves in times of supply disruptions, warning of rising geopolitical risks amid conflicts in Ukraine and Palestine.
Saudi Arabia’s oil price cut reflects pressure on markets and strong competition in Asia
Saudi Arabia cut official crude oil selling prices to Asia next month amid continued ample supply, a sign of weakness in markets as OPEC and its allies deepen production cuts in a bid to avoid surpluses.
State-owned Saudi Aramco cut the price of its main Arab Light crude to Asia by 50 cents to $3.50 a barrel more than the January benchmark, according to a price list seen by Bloomberg. However, this was lower than the estimated reduction of $1.05 per barrel..
Saudi Arabia’s price cuts highlight fierce competition to win Asian customers in a market plagued by oversupply. Sweet or low-sulphur crude oil, which is usually more expensive because it produces more valuable fuels, has been sold at very cheap prices in recent weeks. Murban futures premiums are down from a month ago, while US West Texas Intermediate (WTI) Midland crude prices also fell.
Last week, the Organization of the Petroleum Exporting Countries and its allies agreed to cut joint supplies by more than two million barrels per day, almost half of which comes from Saudi Arabia. Saudi Energy Minister Prince Abdulaziz bin Salman said in an interview on Monday that cuts could “definitely” continue beyond the first quarter if needed.
The cuts have so far failed to push oil prices higher, as traders remain unconvinced that the cut will be fully implemented. First-month spreads fell back to Contango’s bearish structure, indicating oversupply.
However, OPEC+ has yet to announce its decision. A preliminary agreement was announced over the weekend, but the agreement did not receive consensus. As a result, the resolution was put to a vote, which Saudi Arabia supports. But the results of the ballot have not yet been announced.
Oil price fluctuations between economic tensions and concerns
Crude oil prices rose in early trade on Tuesday amid geopolitical tensions in the Middle East as well as easing concerns about demand volumes. However, the rally turned into a short period as prices corrected and fell below Monday’s closing levels.
A stronger dollar, as well as anxiety ahead of jobs data from the US and inflation data from China, also led to lower crude oil prices. Markets expect additions to US nonfarm payrolls in November to rise from the previous month’s levels. The deflationary situation in China, which is expected to remain flat, has weighed on black liquid sentiment. Uncertainty over the recently announced voluntary production cuts has also increased volatility.
Data to be released by the American Petroleum Institute later in the day is expected to show a 2.3 million barrel drop in crude oil inventories during the week ending Dec. 1. Inventories fell by 0.82 million barrels in the previous week.
Official data for the same period from the US Energy Information Administration due on Wednesday is also expected to show a drop of 2.3 million barrels, compared to adding 1.6 million barrels the previous week.
Brent crude futures for February settlement are currently trading at $77.94, after down 0.12 percent from the previous close of $78.03. Today’s trading ranged between $79.09 and $77.79, versus 52-week trading that ranged between $70.06 and $97.69.
WTI crude futures for January settlement also fell 0.07% from the previous close of $73.04 to trade at $72.99. Prices ranged from highs of $74.08 to lows of $72.85. The 52-week trading range is between $63.64 and $95.03.
