Oil down on market expectations of larger OPEC+ cuts

Oil prices decreased on Friday in a mostly steady trading session as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, extended current cuts through the first quarter of next year against the market expectation of additional collective production cuts.

International benchmark crude Brent traded at $80.62 per barrel at 9.47 a.m. local time (0647 GMT), a 0.29% decrease from the closing price of $80.86 a barrel in the previous trading session on Thursday.

The American benchmark, West Texas Intermediate (WTI), traded at the same time at $75.88 per barrel, down 0.10% from Thursday’s close of $75.96 per barrel.

Prices gained more than $3 a barrel on Thursday ahead of the OPEC+ meeting over supply uncertainties by the group.

Although markets already factored in the extension of the current cuts, they were expecting larger output cuts based on the predictions of the International Energy Agency, which signaled a supply surplus of almost 1.3 million barrels per day (bpd)
during the first quarter of next year.

However, OPEC+ members confirmed their collective production cuts of 3.6 million barrels per day (bpd) to run until the end of 2024, causing prices to dive to $80 a barrel.

The group also eased concerns that OPEC+ producers would lose market share if they rolled over production cuts by adding Brazil to the group.

With an estimated 3.6 million barrels of daily oil production, Brazil ranks tenth in the world.

Once Brazil’s output is included in the group, OPEC+’s global market share will rise to over 60% and revert to levels not seen since 2018.

Voluntary cuts cast doubt on group unity

The group also introduced some voluntary cuts by individual members, most of which were extensions of current output cuts.

For the first quarter of 2024, there will be additional voluntary cutbacks of around 2.2 million bpd. These will come from Saudi Arabia with 1 million bpd, Iraq with 223,000 bpd, the United Arab Emirates with 163,000 bpd, Kuwait with 135,000 bpd, Kazakhstan with 8
2,000 bpd, Algeria with 51,000 bpd and Oman with 42,000 bpd.

Russia will cut 500,000 bpd over the same period relative to export levels in May and June this year. These will consist of 300,000 bpd of crude oil and 200,000 bpd of refined products.

The voluntary cuts will be in place from January until March of next year and will return gradually, subject to market conditions, ‘to support market stability.’