Oil Falls on Worries About Voluntary Supply Cuts
By Adedapo Adesanya
Oil slumped by more than 2 per cent on Friday as traders showed scepticism about the depth of supply cuts by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) as well as concerns about sluggish global manufacturing activity.
Brent crude went down by $1.98 or 2.45 per cent to close at $78.88 a barrel as the US West Texas Intermediate (WTI) crude dropped $1.89 or 2.49 per cent to sell for $74.07 a barrel.
For the week, Brent posted a decline of about 2.1 per cent, while WTI lost more than 1.9 per cent.
OPEC+ producers agreed on Thursday to remove around 2.2 million barrels per day of oil from the global market in the first quarter of next year, with the total including a rollover of Saudi Arabia and Russia’s 1.3 million barrels per day of current voluntary cuts.
Algeria agreed to cut oil production by another 51,000 barrels per day, Kazakhstan agreed to reduce oil output by an additional 82,000 barrels per day, Saudi Arabia agreed to extend its 1 million barrels per day output cut, and Russia said that it would deepen voluntary oil export cuts by 300,000 barrels per day, adding it would roll over the existing 500,000 barrels per day voluntary production cuts.
Oman will cut another 42,000 barrels per day, Iraq will voluntarily cut 211,000 barrels per day, Kuwait will cut 135,000 barrels per day, and the United Arab Emirates will cut 163,000 barrels per day.
The cuts agreed by OPEC+ are voluntary, so there was no collective revision of OPEC+ production targets.
The voluntary nature of the cuts led to some scepticism about whether or not producers would fully implement them, and also from what basis the cuts would be measured
Also, Saudi Arabia warned other members that it could unwind its voluntary 1 million barrels per day cut if other producers don’t agree to cut deeper, there are more worries about the policy.
Investors are keeping a watchful eye on global manufacturing activity, which remained weak during the month due to poor demand.
On Friday, talks to extend a week-long truce between Israel and the Palestinian militant group Hamas collapsed, prompting a resumption of the war in Gaza.
The conflict had initially supported oil prices on concern that any escalation that involved surrounding oil producers could disrupt supply. However, the conflict has had no significant impact on global oil flows.
On the supply side, the US government on Friday imposed additional sanctions related to the price cap on Russian oil, targeting three entities and three oil tankers.
Meanwhile, the United Nations Secretary-General, Mr Antonio Guterres on Friday called for a future with no fossil fuel burning at all while speaking at the two-week COP28 summit in the UAE.