Oil Prices Rebound After Saudi-Russia Call for More Output Cuts

The world's top oil exporters urge OPEC+ members to join the agreement to curb the global supply glut and boost the market.

by Victor Adetimilehin

Oil prices recovered some ground on Friday after a seven-week losing streak, as Saudi Arabia and Russia, the world’s two biggest oil exporters, called for more OPEC+ members to join the agreement on output cuts for the good of the global economy.

Brent crude futures rose $1.54, or 2.1%, to $75.59 a barrel, while U.S. West Texas Intermediate crude futures gained $1.39, or 2%, to $70.73 a barrel.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, agreed to a combined 2.2 million barrels per day (bpd) in output cuts for the first quarter of next year, only days after a fractious meeting of the producers’ club.

However, some analysts doubt the effectiveness of the deal, as some of the OPEC+ countries may not adhere to their commitments due to muddied quota baselines and dependence on hydrocarbon revenues.

“Despite OPEC+ members’ pledges, we see total production from OPEC+ countries dropping by only 350,000 bpd from December 2023 into January 2024 (38.23 million bpd to 37.92 million bpd),” said Viktor Katona, lead crude analyst at Kpler.

China’s Demand Woes and U.S. Output Surge

According to a report by Reuters, the oil market has been under pressure for weeks, as concerns about China’s economy and surging U.S. oil output have fuelled the market’s downturn.

Chinese customs data showed its crude oil imports in November fell 9% from a year earlier as high inventory levels, weak economic indicators and slowing orders from independent refiners weakened demand.

China is the world’s largest oil importer and the second-largest consumer after the United States. In India, fuel consumption in November fell after touching a four-month peak the previous month, hit by reduced travel in the world’s third-biggest oil consumer as a festive boost fizzled. In the United States, output remained near record highs of more than 13 million bpd, U.S. Energy Information Administration data showed on Wednesday.

The U.S. shale industry has been ramping up production in response to higher prices and lower costs, challenging OPEC+’s efforts to balance the market.

Market Outlook and Fed Watch

The market is also looking for monetary policy cues from the official U.S. monthly job report due later today.

The data is expected to show job growth picking up in November and wages increasing moderately, which will cement views that the U.S. Federal Reserve is done raising interest rates this cycle.

Lower interest rates tend to support oil prices by weakening the dollar, making oil cheaper for buyers using other currencies.

However, some analysts warn that the oil market may face more volatility ahead, as the demand outlook remains uncertain amid the emergence of new coronavirus variants and the slow pace of vaccination in some regions.

“The oil market is still in a fragile state and any negative news could trigger another sell-off,” said Edward Moya, senior market analyst at OANDA.

On a positive note, some experts believe that the oil market will eventually recover as the global economy rebounds from the pandemic and the supply-demand imbalance is corrected.

“Oil prices are likely to remain under pressure in the near term, but we expect them to rise gradually over the medium term as demand recovers and OPEC+ maintains discipline,” said Giovanni Staunovo, oil analyst at UBS.

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