By Myra P. Saefong and William Watts
Oil futures edged higher on Friday, holding onto a gain for the week, after posting a decline in the previous session following the outcome of an eagerly awaited OPEC+ meeting that left traders unconvinced producers will fully deliver additional production cuts.
Price action
West Texas Intermediate crude for January delivery CL.1 CL00 CLF24 rose 61 cents, or 0.8%, to $76.57 a barrel on the New York Mercantile Exchange, on track for a 1.4% weekly rise.February Brent crude BRN00 BRNG24, the global benchmark, added 3 cents, or less than 0.1%, at $80.89 a barrel on ICE Futures Europe, headed for a 0.5% weekly rise.January gasoline RBF24 climbed 1% to $2.1977 a gallon, poised to gain 2.9% for the week, while January heating oil HOF24 shed 1.1% to $2.7248 a gallon, eying a weekly loss of 1.4%.Natural gas for January delivery NGF24 traded at $2.78 per million British thermal units, down 2.2 cents, or 0.8%, for the session, and trading down more than 7% for the week.
Market drivers
Crude prices slumped Thursday after OPEC+ producers agreed to cut around 2.2 million barrels per day (bpd) of crude from the market in the first quarter of next year, a figure that included a widely expected extension of Saudi Arabia’s 1 mbd voluntary output cut and Russia’s 300,000 barrel a day cut to crude exports.
The majority of the reduction is just an extension of the Saudi and Russian voluntary cuts, “rather than additional cuts from the group’s two largest producers,” said Troy Vincent, senior market analyst at DTN.
The additional cuts, which were left to be announced by individual members, also disappointed traders who questioned the enforcement of the reductions by smaller producers given their voluntary nature.
Check out: Why oil prices dropped despite OPEC+ pledge to make additional production cuts early next year
The announced cuts were “clearly contentious and came after much debate, which is incredibly important to note given that the cuts were purely voluntary,” said Vincent. “This understandably casts doubt on whether the roughly 700,000 bpd of new voluntary cuts coming from Iraq, the UAE, Kuwait and others will be realized – some of whom are already overproducing.”
He also pointed out that recent events, including comments from the Saudi energy minister blaming the drop in oil prices on speculators rather than the supply and demand balance, “reveal the extreme degree of OPEC guidance and narratives diverging from reality.”
After all, if the market was well balanced as the minister claimed, there would be no need for the additional cuts that were just announced, said Vincent.
Meanwhile, OPEC+ said in its statement Thursday that the voluntary cuts would be wound down “gradually subject to market conditions,” Helima Croft, global head of commodity strategy at RBC Capital Markets, said in a note.
In the run-up to the meeting, there was speculation Saudi Arabia could phase back its 1 mbd cut in January to regain market share, Croft noted. “We see this added timing language as an attempt to squash speculation that they will flood the market with those barrels at some point in the near future.”
In other developments, Brazil said it would join OPEC+ in January. That could be an important medium-term development if the South American producer eventually agrees to collective output management, Croft said.
Brazil’s leadership has targeted 5.4 mbd of production by the end of the decade, up around 2 mbd from current levels, and is seen as one of the most significant sources of non-OPEC supply growth over the medium term, she said.
-Myra P. Saefong -William Watts
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12-01-23 1023ET
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