OPEC and Russia face pressure as oil prices slide




OPEC and Russia are feeling the pressure due to the recent decline in world oil prices over the past month, which is affecting their revenue and commitment to production cuts.

On Friday, news of a possible extension of these production cuts into 2024 helped boost US West Texas Intermediate (WTI) prices by more than 4% in the afternoon (US time). However, this increase wasn't sufficient to shift the oil price curve out of its contango positions. The March and April contracts for the next year were trading at a 20 cent premium to the front month in New York, a situation where producers typically buy and store oil in anticipation of selling it at higher prices in the future.

The initial price increase resulting from the outbreak of fighting between Hamas and Israel on October 7 has since faded, and prices reached a four-month low on Friday when reports surfaced about Saudi Arabia's reconsideration of extending its one-million-barrel-per-day cut into 2024 instead of ending it on December 31.

Reports from Reuters, the Financial Times, and other sources citing OPEC+ sources suggest that Saudi Arabia is planning to extend its voluntary production cuts into 2024. The group is also considering additional cuts to quotas at the November 26 meeting to support prices and express concern over the situation in Gaza.

As a result of this news, WTI crude for December delivery closed up $2.99 to $5.89 per barrel, while January Brent crude, the global benchmark, closed up $3.19 to settle at $80.61 per barrel. Prices for both crudes continued to rise after settlement.

Goldman Sachs expressed its belief that OPEC will aim to keep Brent oil prices within a range of $80 to $100 by leveraging its pricing power, with a $80 floor and a $100 ceiling. They also noted that this range should offer robust returns.

The leak and Saudi Arabia's change in stance come at a time when global crude prices have had a challenging week, marking the third consecutive week of decline. This downward trend in prices has been driven by factors such as rising inventories, record US production, and concerns about future demand.

Saxo Bank analysts noted that OPEC will meet on November 26 to consider how to respond to weakening oil prices and concerns about potential challenges to global growth affecting demand.

However, some analysts caution that further production caps and price increases could negatively impact global economic growth and oil demand in 2024. Prices have been weakening partly due to concerns about 2024 demand levels, with some traders skeptical of the International Energy Agency's demand estimates.

Additionally, news that US drillers increased the number of oil rigs by the most in nine months added to concerns about oil supply, particularly given the rising output from American fields.

US energy firms added oil and natural gas rigs this week for the first time in three weeks, with the oil rig count registering its largest increase since February. The number of active oil rigs in the US rose by six last week to 500, still below the number from a year ago, despite production being more than a million barrels a day higher.

In contrast, the US gas rig count decreased by four compared to the previous week.

In summary, the media leaks about OPEC and Saudi Arabia's considerations have added to the complexities of the oil market, where a delicate balance between supply, demand, and geopolitical factors continues to shape prices.


Name Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.