U.S. Crude Oil Prices Drop Following OPEC’s Meeting Postponement
U.S. crude prices experienced a decline following the postponement of a crucial meeting on production cuts by the Organization of the Petroleum Exporting Countries (OPEC). The West Texas Intermediate (WTI) contract for January initially dropped about 5% to $73.85 a barrel in the morning but later recovered most of those losses.
The final settlement for U.S. crude was $77.10 a barrel, down 67 cents or 0.86%. The Brent contract for January fell 49 cents, or 0.59%, settling at $81.96 a barrel.
OPEC announced that the meeting of energy ministers, originally scheduled for the weekend, would be delayed until the following Thursday. While the organization did not provide a reason for the delay, reports suggested that Saudi Arabia was facing challenges convincing Angola and Nigeria to accept lower output targets.
Traders had been anticipating the possibility of additional production cuts by OPEC and its allies, known as OPEC+. However, compliance with production quotas remains a significant challenge, as many countries have an incentive to deviate from their agreed-upon levels, according to Tamas Varga, an analyst with PVM Oil Associates.
“Compliance will be weak going forward,” Varga said. The analyst highlighted Russia, pointing out that the country needs to finance its war in Ukraine. The decline in oil prices from September highs is attributed to a combination of record non-OPEC production and concerns about demand in China, where exports have experienced a six-month consecutive decline.
“It’s undermining the Saudi efforts to get the price back to $100 a barrel plus,” John Kilduff, an oil analyst said.
That picture was highlighted on Wednesday by U.S. data. Based on data supplied by the Energy Information Agency, crude output is anticipated to be at a record level of 13.2 million barrels per day, which is 1.1 million barrels per day higher than the period previous year.
The week ending November 17 saw a rise of 8.7 million barrels in domestic crude inventories, exclusive of the strategic reserve. In the meantime, the amount of finished gasoline supplied fell by 469,000 barrels from the previous week, suggesting that American demand is dropping.
According to Kilduff, if the northern hemisphere experiences a warm winter, U.S. crude might challenge $70 per barrel and potentially fall as low as $60.
Although the supply and demand situation might annoy OPEC, it will benefit American consumers financially.
According to GasBuddy, gas prices in the United States are expected to average $3.25 per gallon on Thursday. Since 2020, that would be the lowest gasoline price on Thanksgiving.
Since 2022, OPEC+ has removed 5.16 million barrels from the market every day. This comprises 1.5 million bpd of voluntary reductions from Saudi Arabia and Russia and 3.66 million bpd from the group.
In recent weeks, Brent has dropped below $80 a barrel despite such a significant reduction. According to Goldman Sachs, OPEC will maintain Brent’s price in the $80–$100 per barrel range by using its pricing power.
Though they wouldn’t rule out the potential of greater cuts given the current state of the market, most analysts believe that OPEC+ extending the current cuts beyond 2024 is the most likely scenario.
To enable the release of the several captives held in Gaza, Israel, and Hamas also decided to a four-day ceasefire on Wednesday. Although traders increasingly see a regional battle as unlikely, oil prices surged in October due to fears that the violence could extend throughout the Middle East.
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The current decline in crude prices has been attributed by OPEC to speculators, even though market fundamentals remain solid. However, Varga noted that at the moment, markets are just not buying OPEC’s story.
“Investors do not believe that the fourth quarter of the year and the first one or two quarters of next year will be as tight as OPEC has been implying,” Varga said.
