Oil falls to near 5-month low on OPEC+ cut doubts, demand concerns

An aerial view shows tugboats helping a crude oil tanker to berth at an oil terminal, off Waidiao Island in Zhoushan, Zhejiang province, China July 18, 2022. cnsphoto via REUTERS/File photo

NEW YORK  – Oil prices fell to a near five-month low on Tuesday on a stronger U.S. dollar and demand concerns, putting the market down for a fourth day in a row on doubts over OPEC+ announced voluntary supply cuts last week.

“The OPEC+ deal did little to support prices and given the (four) days of declines that followed it, traders are clearly very unimpressed,” said Craig Erlam, senior market analyst UK & EMEA, at data and analytics firm OANDA.

Brent crude oil futures fell 83 cents, or 1.1 percent, to settle at $77.20 a barrel, while U.S. West Texas Intermediate crude (WTI) ended 72 cents, or 1.0 percent, lower at $72.32.

That was the lowest close for both crude benchmarks since July 6. For WTI, it was the first time since May that prices fell for four days in a row.

The price declines came despite comments from Russian Deputy Prime Minister Alexander Novak that OPEC+ stands ready to deepen oil production cuts in the first quarter of 2024 to eliminate “speculation and volatility” if existing actions to cut production were not enough.

OPEC+ groups the Organization of the Petroleum Exporting Countries and allies such as Russia.

On Nov. 30, OPEC+ agreed to voluntary output cuts of about 2.2 million barrels per day (bpd) for the first quarter of 2024. But at least 1.3 million bpd of those cuts were an extension of voluntary curbs Saudi Arabia and Russia already had in place.

“The voluntary element of the deal left the markets questioning whether the supply reduction would actually come into effect,” said Fiona Cincotta, financial market analyst, at U.S. financial services firm StoneX.

The Kremlin said the OPEC+ production cuts will take time to kick in. President Vladimir Putin will visit OPEC members the United Arab Emirates and Saudi Arabia on Wednesday and host Iranian President Ebrahim Raisi in Moscow on Thursday.

READ: OPEC+ agrees to deepen voluntary oil output cuts

Russia’s oil and gas revenues dropped in November to 961.7 billion rubles ($10.53 billion) from 1.635 trillion rubles in the previous month due to the cyclical nature of profit-based tax payments.

Top oil exporter Saudi Arabia lowered the price of its flagship Arab Light crude to Asian customers in January for the first time in seven months, reacting to weakening premiums in the physical market amidst supply overhang concerns.

OPEC member Libya’s National Oil Corp, meanwhile, said it was on track to grow oil output to 2 million bpd in the next three to five years.

In U.S. supply, U.S. crude oil and fuel inventories rose in the week to Dec. 1, according to market sources citing American Petroleum Institute figures on Tuesday. The data caused oil prices to extend losses post-settlement.

Crude stocks rose by 594,000 barrels in the week ended Dec. 1, the sources said on condition of anonymity. Gasoline stockpiles gained by 2.8 million barrels, while distillate inventories rose nearly 1.9 million barrels.

U.S. government data on stockpiles is due on Wednesday.

Demand concerns

In China, the world’s biggest oil importer, major state-owned banks were busy buying the yuan to prevent it from weakening too much after rating agency Moody’s cut China’s outlook to negative.

READ: Moody’s cuts China credit outlook to negative 

Elsewhere, countries at the COP28 climate conference are considering calling for a formal phase-out of fossil fuels as part of the United Nation summit’s final deal to tackle global warming.

The U.S. dollar rose to a two-week high against a basket of currencies after fresh employment data showed job openings dropped in October to the lowest level since early 2021.

The slowing labor market and subsiding inflation have raised optimism that the Federal Reserve is probably done raising interest rates this cycle, with financial markets anticipating a rate cut in mid-2024.

A stronger dollar can reduce oil demand by making the fuel more expensive for buyers using other currencies.

Lower interest rates, meanwhile, could increase oil demand by making it cheaper for consumers to borrow money to purchase more goods and services.