Supply Disruptions and OPEC Concerns
The West Texas Intermediate (WTI) crude futures fell 0.2% to $73.73 a barrel at 14:30 ET, while Brent oil futures for February delivery dropped 0.3% to $79.18 a barrel. It should be noted that both benchmarks wrapped up the week with a 4% increase.
The prospect of supply shortages, due to attacks by the Iran-aligned Yemeni Houthi group in the Red Sea, led to several oil and shipping companies avoiding the area. However, earlier this week, concerns arose when Angola exited OPEC, casting doubts on the group’s ability to implement future production cuts and stabilize prices.
Fears Regarding OPEC’s Cohesion
Although Angola’s departure from the oil producer group only accounts for approximately 1.1 million barrels per day (bpd) out of the whole group’s production of 28 million bpd, it has fueled concerns about OPEC’s unity. Given the ongoing uncertainty surrounding the organization’s cohesion, the news affected market sentiment negatively.
Weaker Dollar and Inflation Data Impact
In addition to supply disruptions and OPEC concerns, a weaker dollar also played a role in supporting oil prices. Friday’s data revealed that the Personal Consumption Expenditures (PCE), the Federal Reserve’s preferred inflation measure, decreased more than anticipated. Consequently, this added to expectations of aggressive rate cuts in the coming year.
The PCE report showed a 0.1% decrease in November, resulting in an annualized rate of 2.6%, below the expected 2.8%. As a result, investors are now anticipating a decline of 175 basis points by the end of next year, which would take the Fed funds rate to a range of 3.5% to 3.75%.