Oil stabilized after tumbling on Thursday, after OPEC+ met, and promised additional output cuts forthcoming, but failed to provide any details regarding them.
Brent crude futures for February delivery were trading around $81 per barrel, after sliding 2.4% over the previous session. West Texas Intermediate traded at about $76 per barrel. Although the alliance announced there would be output cuts of roughly 900,000 barrels per day starting in January, the cuts were voluntary. In addition, already out of the gate, Angola rejected its quota of the cuts. Saudi Arabia said it intended to continue its own one million barrel per day production cuts through the first quarter.
Crude began Thursday rising, following word that OPEC+ had come to a preliminary agreement on production output cuts, which it was hoped by traders would reduce an anticipated surplus seen starting next year.
However the optimism which produced the price increase rapidly abated as it became clear there was a lack of details. In addition the alliance failed to hold a final press conference, as is customary, and there were no final communiques, which left traders confused.
In a Bloomberg TV interview, Vandana Hari, founder of consultancy Vanda Insights, said that the OPEC meeting’s conclusion was a “confusing, entangled mess,” and, “These are all still voluntary cuts, and that’s one of the reasons for the disappointment,” adding that it remained to be seen if the promised 900,000 barrels per day of reduced output would materialize in the first quarter or not.
Crude appears ready to end the week where it started, following the roller coaster ride which was the on again, off again, on again OPEC+ meeting. It had already seen its second monthly decline due to indications of increasing supplies entering the market from outside the group, as well as weakening demand. The news got worse on Thursday, when the US reported that the world’s largest producer saw crude output reach a record 13.2 million barrels per day for September.
At the same time, Brazil, which has also been increasing its contributions to the global supplies, noted it would join the OPEC+ alliance next year, although it will not be partaking of any production cuts until then.
According to Jorge Leon, senior vice president of oil market research at Rystad Energy, the meeting offered a mixed outcome for Saudi Arabia, as its failure to produce a definitive, group-wide consensus agreement is not a good sign going forward for the unity of the group and its ability to work together to control the market. He predicted there would be a 400,000 barrel per day supply deficit in the first half due to the cuts, which would drive Brent up to about $80 to $85 per barrel over the coming months.
