Oil prices slump more than 2% to post sixth straight weekly decline despite Opec+ cuts

Oil prices fell by more than 2 per cent on Friday and posted a sixth consecutive decline amid uncertainty over future demand despite Opec+ members extending their voluntary oil output reduction.

Brent, the benchmark for two thirds of the world’s oil, shed 2.45 per cent to settle at $78.88 a barrel. West Texas Intermediate, the gauge that tracks US crude, slipped 2.49 per cent to finish at $74.07 a barrel.

Opec+ members on Thursday extended their voluntary oil output reductions until the end of the first quarter of 2024 amid concerns over future fuel demand.

Saudi Arabia, the world’s largest oil exporter, will keep its voluntary output cut of one million barrels per day until the end of March. The UAE and Russia will also deepen their crude production cuts.

In total, the group revealed supply reductions of almost 2.2 million bpd for the first quarter.

However, with oil prices reversing initial gains and declining after the announcement on Thursday, analysts suggest the market was “disappointed” by the decision, as it fell short of expectations.

“The new cuts are only for the first quarter of 2024 and, more importantly, the group failed to agree on an Opec+ wide cut and instead had to rely on voluntary unilateral cuts,” said Jorge Leon, senior vice president at Rystad Energy.

The reaction of prices on Thursday was like “sitting on a roller coaster”, said Giovanni Staunovo, a strategist at Swiss bank UBS.

“While we believe Opec+ wants to stay in control of the oil market by taking a proactive approach to prevent oil inventories from rising in the first quarter of 2024 when oil demand normally seasonally weakens, the way those production cuts has been announced has created confusion,” he said.

“As those are voluntary cuts, market participants seem to be concerned that a large fraction of those new pledged cuts won’t get implemented. Also, part of the current Opec+ production cuts are voluntary, so we should still lower Opec+ crude production in the first quarter.”

Oil prices, which briefly touched $98 in September, have since fallen by around 16 per cent, despite predictions of a tight crude market in the fourth quarter by the International Energy Agency and Opec.

Crude jumped at the start of the Israel-Gaza war in October on concerns that it would escalate into a broader conflict in the region, which is responsible for about a third of the world’s oil production.