OPEC+ Cutting Production in the First Quarter of 2024
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, have made a commitment to reduce production by 2.2 million barrels per day (bpd) during the first quarter of 2024. However, analysts from ANZ Research noted that shale oil production in the United States has been growing unexpectedly, along with significant increases from non-OPEC producers. The continuous expansion in non-OPEC production raises concerns over potential oversupply.
Crude Oil Prices in Contango Market Structure
Both WTI and Brent crude oil prices are currently in a contango market structure, where prompt contracts are priced lower than later-dated contracts for the initial months of 2024. This market condition is indicative of market participants expecting future increases in oil prices. During the start of December, Brent crude prices were above $80 a barrel, but have since fallen, while WTI slipped from over $77.
Aside from monitoring oil prices, the market is closely watching negotiations at the COP28 summit for potential climate deals. A draft climate deal released on Monday drew criticism from the U.S., EU, and climate-vulnerable nations for not including the phase-out of fossil fuels, a demand previously made by many nations. In addition, market participants are paying attention to interest rate policy decisions from central banks this week. Key events include the release of the U.S. Consumer Price Index (CPI) report on Tuesday, the conclusion of the Federal Open Markets Committee’s (FOMC) two-day monetary policy meeting on Wednesday, and interest rate decisions from the European Central Bank (ECB) on Wednesday and the Bank of England (BoE) on Thursday.
Declining Demand for Saudi Arabian Crude from China
In related news, demand for Saudi Arabian crude oil from Chinese refiners in January is reportedly at its lowest level in five months. This decline is attributed to higher-than-expected prices, leading buyers to seek cheaper alternatives elsewhere. Saudi Arabia is competing with Russia as China’s top oil supplier.