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Crude Prices Fall on Market Doubts About OPEC+ Crude Production Cuts

Barchart - Thu Nov 30, 2023

January WTI crude oil (CLF24) on Thursday closed down -1.90 (-2.44%), and Jan RBOB gasoline (RBF24) closed down -0.0715 (-3.18%).

Crude oil and gasoline prices on Thursday gave up early gains and sold off sharply after OPEC+ said it would cut its crude production level by -1.0 million bpd but did not provide details on how the cuts would be implemented.  A stronger dollar Thursday also weighed on crude prices.

On Thursday, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024.  However, crude prices sold off on the news since no details were provided on how the cuts would be distributed among members nor how Russia's -300,000 bpd export cut would factor into the new totals.  Delegates said the final details of the new accord, including national production levels, would be announced individually by each country rather than in the customary OPEC+ communique.  The market is disappointed that the extra cuts in OPEC crude output will be announced by each individual country, which suggests the cuts may only be voluntary.

Saudi Arabia said Thursday it would maintain its unilateral crude production cut of 1.0 million bpd through June of 2024.  The move would maintain Saudi Arabia's crude output at about 9 million bpd, the lowest level in three years.  Russia also recently announced that it would maintain its 300,000 bpd cut in crude production through June 2024.  OPEC Oct crude production was little changed, rising +50,000 bpd to 28.08 million bpd.

The rift between Angola and other OPEC+ members remains and is a bearish factor that signals more infighting among members.  Angola OPEC governor Pedro said Thursday that his country rejects OPEC's quota and "Angola will produce above the quota determined by OPEC."  Angola is Africa's second-largest crude producer, and OPEC governor Pedro said his country will pump 1.18 million bpd in January, above the 1.11 million quota set out by OPEC.

Thursday's global economic news was mixed for energy demand and crude prices.  On the bearish side, U.S. weekly continuing claims rose +86,000 to a 2-year high of 1.927 million, showing a weaker labor market than expectations of 1.865 million.  Also, China Nov manufacturing PMI unexpectedly fell -0.1 to 49.4, weaker than expectations of an increase to 49.8 and the weakest level in 4 months.  On the bullish side, the U.S. Nov MNI Chicago PMI rose +11.8 to a 1-1/2 year high of 55.8, stronger than expectations of 46.0.  Also, German Oct retail sales rose +1.1% m/m, stronger than expectations +0.4% m/m and the biggest increase in 13 months.

A decline in crude in floating storage is bullish for prices.  Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -2.9% w/w to 86.52 million bbl as of Nov 24.

Increased crude consumption in India, the world's third largest crude consumer, is bullish for oil prices after India's oil product consumption in October rose +3.7% y/y to 19.3 MMT, the highest five months.

An increase in Russian crude exports is bearish for oil prices.  Tanker-tracking data monitored by Bloomberg shows 3.24 million bpd of crude was shipped from Russian ports in the week to Nov 26, up +370,000 bpd from the prior week and near the highest in four months.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Nov 24 were +0.2% above the seasonal 5-year average, (2) gasoline inventories were -1.4% below the seasonal 5-year average, and (3) distillate inventories were -10.0% below the 5-year seasonal average.  U.S. crude oil production in the week ended Nov 24 was unchanged w/w at a record high of 13.2 million bpd.

Baker Hughes reported last Wednesday that active U.S. oil rigs in the week ended Nov 24 were unchanged at 500 rigs, modestly above the 1-3/4 year low of 494 rigs from Nov 10.  The number of U.S. oil rigs has fallen this year after moving sharply higher during 2021-22 from the 18-year pandemic low of 172 rigs posted in Aug 2020 to a 3-1/2 year high of 627 rigs in December 2022.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.