Oil prices in 6th weekly side as bears sharpen claws after OPEC+ cuts fall short

Investing.com — Oil prices fell for a sixth-straight week Friday, as voluntary output cut agreements from major oil producers that fell short expectations continued to keep worries about oversupply front and centre. 

By 14:30 ET (19.30 GMT), the futures settled 2.5% lower at $74.07 a barrel, and the contract dropped 2.5% to $78.88 a barrel.

Both benchmarks fell around 2% on Thursday, resulting in losses over the course of November of over 6%, the second consecutive losing month.

OPEC+ voluntary output cut agreements amount to ‘paper cut’

Seven OPEC+ countries announced plans for additional voluntary production cuts in the first quarter, the sum of which amount to “paper cut” of 896,000 barrels per day, Goldman Sachs said in a note, as the recent upside surprise in the global crude supplies could weigh on oil prices.   

“We had already assumed the rollover of the Saudi and Russian cuts into 1Q24, as had most of the market,” said analysts at ING, in a note. “Therefore, new additional cuts of a little under 900Mbbls/d will be seen in 1Q24. These additional voluntary cuts will be brought back gradually to the market after 1Q24 depending on market conditions.”

‘OPEC Put’ weakening as bar for further cuts higher

Markets had been pricing in a larger cut, and the voluntary nature of the reductions has created uncertainty over the actual extent of future supply levels, signaling that the ‘OPEC put’ is waning.  

“The OPEC put is weakening because extra cuts are becoming increasingly difficult to implement,” Goldman Sachs adds, suggesting that “any additional cuts become increasingly difficult to implement.

Still, the cuts, which could lower crude supplies by 700,000 barrels per day in the first half of next year, Goldman Sachs forecasts could support Brent oil prices in the $80 to $100 range in 2024. 

China’s stuttering economy adds to demand concerns 

Weaker data from China, the world’s largest oil importer, further soured sentiment on oil prices after the  contracted for a second month in November. 

The weaker data fueled concerns about global growth weighing on the crude demand outlook at time when recent data in Eurozone has suggested the recession winds could be on the horizon.  

Dollar doldrums offers little respite; rig counts on the up and up

The dollar followed Treasury yields lower as Federal Reserve Chair pushback on rate cuts did little to pin back hopes on further rate cuts. 

The weaker dollar – usually a boon for oil prices – didn’t provide much relief for oil prices as sentiment continued to be dominated concerns about increasing supplies.

Oilfield services firm Baker Hughes reported its weekly U.S. rig count rose to 505 from 500.

(Peter Nurse, Ambar Warrick contributed to this article.)

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