Oil holds losses as traders take skeptical view of OPEC+ cut

Oil held losses after OPEC+’s promised further output cuts but was hazy on details.

Brent crude for February traded near $81 a barrel following a 2.4% slide in the previous session. The alliance announced roughly 900 000 barrels a day of fresh output cuts next year, but the curbs are voluntary, with Angola already rejecting its quota. Saudi Arabia, meanwhile, said it will prolong its separate 1 million barrel-a-day reduction through the first quarter.

Crude initially climbed Thursday as a preliminary agreement brought hopes it would help stem an anticipated surplus at the start of next year. That optimism quickly faded with analysts citing a lack of clarity from the meeting, and subsequently doubts over whether the cuts would be fully implemented.

“The fact that these cuts took such a long time to negotiate, and are still not part of the formal quota, hints at only limited commitment from OPEC countries to implement them,” Morgan Stanley analysts including Martijn Rats and Charlotte Firkins wrote in a note. But “even with only partial compliance, this should prevent stock builds in 1Q and be sufficient to support Brent in the mid-$80s.”

Crude is set to end the week flat following the OPEC+ roller-coaster, and is struggling to shake the range it traded in for much of November. Prices have moved into a lower band than in previous months as surging supplies outside of the producer group — including the US where output is at a fresh record — risk a market surplus in the first quarter.

Meanwhile, Brazil — which has contributed to the increase in global supplies — said it would join the OPEC+ alliance cooperation charter next year, but won’t be taking part in any production cuts for now.

The outcome of the OPEC+ meeting was a “confusing entangled mess,” Vandana Hari, founder of Vanda Insights, said in a Bloomberg TV interview. “These are all still voluntary cuts, and that’s one of the reasons for the disappointment,” she said, adding that whether the extra 900,000 barrels a day of additional curbs are delivered over the first quarter remains to be seen.

© 2023 Bloomberg