Oil Extends Losses Amid Pessimism Over Swelling Global Supplies

By Bloomberg

Dec 01, 2023

image is BloomburgMedia_S4YFGIT0AFB401_01-12-2023_19-00-09_638369856000000000.jpg

Oil pump jacks in Midland, Texas, US, on Thursday, March 2, 2023. Thousands of miles away from the turmoil on Wall Street, Midland, Texas that ranked No.1 in the US for inflation just over a year ago has since ceded that title – only to lay claim to a different one: the country’s pay-raise capital. Photographer: Sergio Flores/Bloomberg

(Bloomberg) -- Oil extended declines amid expectations that the OPEC+ output cuts announced Thursday would do little to tighten the market.

West Texas Intermediate dropped as much as 2.1% to below $75 a barrel, following a 2.4% slide in the previous session. The alliance announced roughly 900,000 barrels a day of fresh output cuts next year, but the curbs are voluntary, with Angola already rejecting its quota. In the US, the oil rig count increased by five in the most recent week, signaling a continued increase in the country’s output.

Crude initially climbed Thursday as the production cartel’s preliminary agreement looked likely to help stem an anticipated surplus at the start of next year. That optimism quickly faded amid a lack of clarity from the meeting and doubts over whether the cuts would be fully implemented.

“Market concerns about compliance may be overblown, but poor communication from the OPEC+ meeting contributed to the downside in oil markets over the last sessions,” said Daniel Ghali, a commodity strategist at TD Securities. “However, as the dust settles, we estimate that the agreement may nonetheless be sufficient to skirt an expected surplus over the coming months.”

Crude is set to end the week down about 1% following the OPEC+ rollercoaster, remaining in the range it has traded in for much of November. Prices have moved into a lower band than in previous months as surging supplies outside of the producer group — including in the US, where output is at a fresh record — risk a market surplus in the first quarter.

WATCH: A lack of details from Thursday’s OPEC+ meeting left oil traders puzzled. Bloomberg’s Anthony Di Paola reports.Source: Bloomberg

Meanwhile, Brazil — which has contributed to the increase in global supplies — said it would join the OPEC+ alliance cooperation charter next year, but won’t take part in any production cuts for now.

The outcome of the OPEC+ meeting was a “confusing, entangled mess,” Vandana Hari, founder of Vanda Insights, said in a Bloomberg TV interview. “These are all still voluntary cuts, and that’s one of the reasons for the disappointment,” she said, adding that whether the extra 900,000 barrels a day of additional curbs are delivered over the first quarter remains to be seen.

By Mia Gindis , Alex Longley