Crude prices fail to rally after OPEC+ decision to cut oil supplies

VALLETTA, Dec. 1 (Xinhua) -- Thursday's decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, to further cut down oil production next year has left the market disappointed, according to analysts.

OPEC+ announced further production cuts for next year to bolster oil prices that have recently tumbled amid a weakening economic backdrop. Several OPEC+ countries are to additionally cut a total of 2.2 million barrels per day (bpd) for the first quarter (Q1) of 2024, which aims to support the stability and balance of oil markets.

The reductions will be taken from the quotas adopted at the last OPEC+ ministerial meeting in June. It will add to the voluntary output cuts announced by OPEC+ countries in April and will last until the end of 2024, OPEC said in a statement.

Saudi Arabia, the de facto leader of OPEC, will extend its voluntary production cut of 1 million bpd, which has been in effect since July, to the end of Q1 2024. Russia, a leading OPEC ally, will cut its oil exports by 500,000 bpd, up from the current 300,000 bpd, until next March.

Other OPEC+ countries, including Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman, have pledged smaller cuts for Q1 2024, the OPEC said.

Warren Patterson, ING's head of commodities strategy, noted that instead of seeing further cuts distributed among the whole group, it was left up to individual members to decide whether they would make deeper voluntary supply cuts.

"Our balance sheet shows that the additional voluntary cuts ensure that the marginal surplus that had been forecast for 1Q24 will be erased, and in fact, we now see a small deficit," Patterson wrote on the ING website.

"This suggests that there is some upside to our current 1Q24 ICE Brent forecast of US$82/bbl and full-year 2024 forecast of US$88/bbl," he said, "However, this will largely depend on how OPEC+ goes about unwinding these cuts and obviously on how demand plays out next year."

"While OPEC seemed to build up expectations leading to a sharp rally, at the end of the day the market was skeptical that OPEC could keep its promises," Phil Flynn, an analyst at the Price Futures Group, said.

Oil prices have slid since October amid concerns about oversupply in a weakening global economic outlook. The international benchmark Brent crude has stayed in the range of low- to mid-80 U.S. dollars a barrel in recent weeks, from this year's peak of over 90 dollars a barrel in September.

Before Thursday's OPEC+ ministerial meeting, analysts had expected the oil-producer group to make bigger production cuts next year to support the oil prices.

Crude prices failed to rally after the meeting, with Brent crude edging down 0.32 percent to settle at 82.83 dollars a barrel on Thursday.

Asset & Wealth Management Investment Strategy Group (ISG) at Goldman Sachs believes that the price of a barrel of oil is likely to trade between 70 and 100 dollars for most of 2024. The forecast reflects slowing oil demand growth arising from tighter financial conditions and still elevated U.S. recession odds over the coming year.