OPEC+ opt against further oil output cuts as prices drop on demand fears
OPEC and its allies including Russia, known as OPEC+, opted against further changes to the group’s swingeing oil output cuts, causing prices to plummet on both major benchmarks.
Ministers from the world’s most influential oil cartel met today and made no revisions to the group’s production policy, with five per cent of the world’s oil supplies already removed from the market.
The news is no surprise, with additional cuts from Saudi Arabia and Russia totalling over 1m barrels per day also set to stay into new year.
Saudi Energy Minister Prince Abdulaziz bin Salman, who chairs the Joint Ministerial Montioring Committee argued last month said OPEC+ cuts were needed to stabilise the market, and prices were not being targeted.
However, the lack of further reductions has seen prices slide over 3.5 per cent on both benchmarks in the immediate aftermath, with Brent Crude down 3.55 per cent at $87.69 per barrel while WTI Crude dropping 3.54 per cent to $86.07 per barrel.
Prices are feeling the pressure from growing concerns of persistently higher interest rates – with fears of an economic downturn, and investors cashing in on a rally which saw Brent Crude spike 27 per cent over the third quarter of 2023.
This is expected to weigh down demand, and has already stalled this autumn’s historic rally, which saw prices threaten the century milestone again – having formerly breached $100 per barrel following Russia’s invasion of Ukraine.
There has also been a sluggish revival in China’s economy, a constant factor weighing down commodities markets.
Craig Erlam, senior market analyst at Oanda, argued that OPEC+’s decision to simply maintain cuts was a concession from its formerly hawkish approach to cuts.
“That may not sound particularly bearish for oil but in doing nothing, the group is leaving the door open to output increases from the turn of the year which arguably is bearish for price. It will all depend on the outlook for the economy and how balanced the market is later in the year but it has taken some of the heat out of the market and makes $100 oil less likely,” he said.
Callum Macpherson, head of commodities at Investec, believed that falling equity and bond markets had prevented Brent Crude from passing $100 per barrel – however, the signs of a drop-off were there with investors exiting the market.
“Market attention has shifted from the focus on the short term tightness to the implications of interest rates staying higher for longer, the subdued macro environment that entails, and how OPEC+ plans to deal with that,” he said.
He expects Brent may receive support from the 50-day average around 88.50 per barrel,.
Fiona Cincotta, Senior Financial Markets, City Index, also noted the strength of the US currency, putting pressure on importers.
“Upbeat data from the US has prompted a sharp rise in treasury yield and boosted expectations that the Federal Reserve will keep interest rates higher for longer. Not only could this slow down economic growth, but it’s also caused a sharp rise in the US dollar, which makes oil more expensive for holders of other currencies,” she added.
OPEC+’s next joint meeting of ministers is on 26 November – the same day as the next scheduled full meeting of the group to decide policy.