Oil prices gave up earlier gains on Thursday, retracting over 1% following the OPEC+ agreement to implement nearly 2 million barrels per day (bpd) in output cuts for early next year.
By 11:01 a.m. EDT (1601 GMT), Brent crude futures for January increased by 16 cents, or 0.2%, reaching $84.09 a barrel. However, the more active February contract declined by $1.03, or 1.2%, settling at $81.85.
U.S. West Texas Intermediate crude futures also experienced a decrease of $1.09, or 1.4%, closing at $78.78.
During a virtual meeting on Thursday, key OPEC+ members, including Saudi Arabia and Russia, discussed 2024 output amidst concerns of a potential market surplus. While their current output of around 43 million bpd already incorporates cuts of approximately 5 million bpd to support prices, doubts arose regarding the implementation of additional cuts.
Sources revealed to Reuters that the new agreement involves cuts nearing 2 million bpd, including Saudi Arabia’s extension of a voluntary 1 million bpd cut since July. Russia is set to reduce by 500,000 bpd, with other members contributing cuts. However, skepticism exists regarding the credibility of how individual OPEC members will achieve these cuts.
Bob Yawger, director of energy futures at Mizuho, expressed doubt about the credibility of the report, emphasizing uncertainties about how the cuts will be realized.
The meeting discussed output quotas for African producers, and Algeria’s Minister of Energy and Mines, Mohamed Arkab, mentioned the possibility of another meeting before the year-end. Algeria also agreed to an additional cut of 50,000 bpd for January.
Investec analyst Callum Macpherson emphasized the significance of Saudi Arabia’s commitment to extending its voluntary cut, but investors await a formal announcement and details of additional cuts.
The OPEC+ Joint Ministerial Monitoring Committee (JMMC) concluded its meeting without making recommendations on 2024 output levels, and there is uncertainty about the impact of implementing additional cuts on long-term oil prices.
Tamas Varga of oil broker PVM noted that compliance and the global oil balance might differ from OPEC estimates, citing recent U.S. commercial inventory data and the impact of high interest rates on demand in major economies.
