Oil falls over 2% after Opec+ cuts fall short of expectations
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The oil market is facing weaker economic growth in 2024 and expectations of a supply surplus.
PHOTO: REUTERS
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LONDON – Opec+ oil producers on Nov 30 agreed to voluntary output cuts totalling about 2.2 million barrels per day (bpd) for early 2024, led by Saudi Arabia rolling over its current voluntary cut.
Benchmark global oil prices fell in part because the reductions were voluntary and because of investor expectation ahead of the producers’ meeting that additional supply cuts might be deeper.
Brent crude futures retreated US$2, or 2.4 per cent, to US$80.86. United States West Texas Intermediate crude futures settled down US$1.90, or 2.4 per cent, to US$75.96.
Saudi Arabia, Russia and other members of the Organisation of Petroleum Exporting Countries and its allies, which pump more than 40 per cent of the world’s oil, had met online to discuss supply policy.
“The market reaction implies disbelief in the full efficacy of the cuts,” J.P. Morgan analyst Christyan Malek said.
“However, setting a new framework for each member to deliver on its cut reflects the degree of trust and cohesion among the members; case in point, the fact that Brazil is joining is testament to the strength in numbers for Opec+.”
The group discussed 2024 output amid forecasts that the market faces a potential surplus and as a one million barrel per day (bpd) cut by Saudi Arabia was set to end in December.
Opec+’s output of some 43 million bpd already reflects cuts of about five million bpd aimed at supporting prices and stabilising the market.
The total curbs amount to 2.2 million bpd from eight producers, Opec+ said in a statement after the meeting. Included in this figure is an extension of the Saudi and Russian voluntary cuts of 1.3 million bpd.
The 900,000 bpd of additional cuts pledged on Nov 30 include 200,000 bpd of fuel export reductions from Russia, with the rest divided among six members.
Russian Deputy Prime Minister Alexander Novak said Russia’s voluntary cut would include crude and products.
The United Arab Emirates (UAE) said it had agreed to cut output by 163,000 bpd, while Iraq said it would cut an extra 220,000 bpd in the first quarter.
Saudi Arabia, Russia, the UAE, Iraq, Kuwait, Kazakhstan and Algeria were among producers that said cuts would be unwound gradually after the first quarter, market conditions permitting.
Opec+ is focused on lower output, with prices down from near US$98 in late September and concerns brewing over weaker economic growth in 2024 and expectations of a supply surplus.
The International Energy Agency in November forecast a slowdown in 2024 demand growth as “the last phase of the pandemic economic rebound dissipates and as advancing energy efficiency gains, expanding electric vehicle fleets and structural factors reassert themselves”.
Opec+ also invited Brazil, a top 10 producer, to become a member of the group. The country’s energy minister said it hoped to join in January.
The Opec+ meeting coincides with the opening of the United Nations’ COP28 climate summit being hosted by Opec member, the UAE. REUTERS
