OPEC+ announces new cuts of 900,000 barrels per day, and algorithmic selling accelerates the sharp decline of West Texas Intermediate crude on Friday. Oil continued its declines, closing its sixth consecutive weekly decline, as the production cuts announced by OPEC+ on Thursday failed to dispel market gloom over inflation. Global supplies.
West Texas Intermediate crude fell 2.5% to settle near $74 a barrel, after falling 2.4% in the previous session. The coalition announced new production cuts of about 900,000 barrels per day next year, but the restrictions are voluntary, as Angola has already rejected its share. In the United States, the number of oil rigs rose by five rigs in the last week, indicating a continued increase in the country’s already record production
Algorithmic selling played a big role in crude’s sharp decline on Friday, with intraday models triggering selling once WTI and Brent fell through key technical levels of $75 and $80, respectively, late in the session. About 5,000 $40/$30 contracts traded bearish on the June ICE WTI on Friday as traders sought protection from the massive price decline. Low trading volumes typical of weekend trading also contributed to choppy trading.
The price of crude oil initially rose on Thursday as the production cartel’s initial agreement appeared likely to help stem an expected surplus at the start of next year. That optimism quickly faded amid the meeting’s lack of clarity and doubts about whether the cuts would be fully implemented. “Market concerns about compliance may be exaggerated, but poor communication from the OPEC+ meeting contributed to the downward trend in oil markets during the past sessions,” the commodities strategist said in a statement.
What do analysts say about OPEC+ cuts?
However, as the dust settles, we estimate that the agreement may be sufficient to avoid the expected surplus over the coming months. The US index ended the week down nearly 2% following OPEC+ volatility, remaining in the range in which it traded during most of November. Prices have moved lower than in previous months as rising supplies outside the producer group threaten a market surplus in the first quarter.
Meanwhile, Brazil – which has contributed to increased global supplies – said it will join the OPEC+ alliance’s cooperation pact next year, but will not participate in any production cuts for now. It was said in an interview with, that the outcome of the OPEC+ meeting was a “confusing and tangled mess.” “These are still all voluntary cuts, which is one reason for the disappointment,” she said, adding that it remains to be seen whether the additional 900,000 barrels per day of cuts will be delivered during the first quarter.
UBS says the market will closely examine compliance levels and Morgan Stanley says there are hints of “limited compliance” from the group and the latest offer from OPEC+ to support crude oil prices through additional oil production cuts that will take effect from January, leaving market watchers Skeptical about the effectiveness of this step. This is partly due to the voluntary nature of the restrictions, and partly due to their opacity. With futures prices lower on Friday, here’s what analysts are saying
Given that these cuts took a long time to negotiate, and are not part of official quotas, they indicate only limited commitment to implementing them, according to Morgan Stanley. Analysts including Martin Ratz said in a note that the impact on supply and demand balances is likely to be less than the headline figure suggests
Previous expectations of a surplus of 300 thousand barrels per day
The updated forecast now indicates a deficit of 300,000 bpd in the first quarter of next year, compared to a previous forecast of a surplus of 300,000 bpd. However, a small surplus is expected to return in the second and third quarters. “Over the next year, we see an increase in inventories.”
Temporary response Analysts said in a note that the additional reduction is a “temporary response” to significant increases in inventories and supplies. In addition, the further rise in spare capacity and the voluntary nature of the cuts suggest that implementing any additional cuts will become increasingly difficult, they said, maintaining a Brent forecast of $93 per barrel in December 2024.
Total confusion The additional cuts should prevent oversupply in the market in the first quarter, according to Giovanni Stanovo, a strategist at. While OPEC+ wants to appear in control of the market, the announcement caused confusion as it was left to individual members to make statements about the size of their cuts. “Market participants will be monitoring compliance levels closely.”
Rystad Energy: Bittersweet Victory Jorge León, Senior Vice President of the Oil Market, said that the outcome of the meeting is a “bittersweet victory” for Saudi Arabia, because its inability to secure a group-wide agreement does not bode well for the group’s unity and its ability to balance the market.
With the cuts, Rystad expects a deficit of around 400,000 barrels per day in the first half, with Brent crude set to trade between $80 and $85 per barrel in the coming months. Meanwhile, Brazil’s decision to join OPEC+ is likely to lift the group’s global market share to more than 60%, a return to 2018 levels.
The latest round of restrictions from OPEC+
ESAI is not convinced that the latest round of restrictions from OPEC+ is an actual additional reduction of up to 700,000 barrels per day. This is because the additional voluntary cuts for 2024 appear to come from the levels agreed in June 2023, and are in addition to other voluntary cuts agreed last April. Although the new announced cuts are voluntary and will raise questions about compliance, it is clear that the group is working to prevent a build-up of inventory and prices are well below today’s levels,” analysts said. Outside of demand shocks, price levels appear well supported.
CBA mounting doubts Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank of Australia, said that in an unusual move, OPEC+ members individually announced their voluntary production cuts, a task usually undertaken by the Secretariat. “These violations, along with the voluntary production cuts approved by OPEC+ that lasted only until the first quarter of 2024, led to increased market doubts about OPEC+ fulfilling its pledges.” Analysts said that the absence of a comprehensive breakdown of OPEC+ production cuts, with only a select number of countries detailing their cuts, failed to convince the market.
