OPEC+ meeting fallout: Oil prices decline despite production cuts

Company News

by Glenn Dyer

Last week, OPEC+ convened but witnessed oil prices falling, despite claims of production cuts made during Thursday's meeting.

Judging by the 2% drop in US crude prices on Friday, traders deemed the OPEC+ meeting disappointing.

Brent crude concluded at $79.56 per barrel, while US West Texas Intermediate finished down 1.6% at $74.38 per barrel, both marking a 1% weekly decrease.

OPEC released details of production cuts: Saudi Arabia - 1 million barrels per day, Russia (300,000 despite claiming 500,000), Iraq - 223,000, United Arab Emirates - 163,000, Kuwait - 135,000, and so on.

Oil traders had a subdued reaction, as they understood that these cuts were largely theoretical and challenging for some countries to implement.

Iraq and Nigeria exceeded their quotas, with Angola and Congo also not fully complying, while Saudi Arabia and Russia struggled to enforce the quotas.

"The absence of a comprehensive breakdown with only a select number of countries detailing their reduction failed to convince the market," wrote the Australian and New Zealand Banking Group in their weekly note, adding that it increased the likelihood of some countries not adhering to their voluntary reductions.

US production remained at record levels, estimated at 13.2 million barrels in the latest week, with expectations of more barrels coming from the new offshore Guyana field in the next year or two.

Rising sales of electric vehicles (EVs) and hybrids in China and parts of Europe continued to reduce petrol and oil demand each month.

Last week saw an unusual increase in the number of oil rigs operating in the US for 2023, rising by five to 505 from 500. Meanwhile, the number of gas and miscellaneous rigs each dipped by one to 116 and four, respectively. A year earlier, the US had 627 oil rigs, 155 gas rigs, and two miscellaneous rigs in operation, according to Baker Hughes data.

Overall, there were 625 rigs operating in the US this week, compared to 784 a year earlier.

On Wednesday, data from the Energy Information Administration revealed an unexpected increase in US commercial crude stockpiles last week, accompanied by rises in gasoline and distillate fuel stocks. US stocks totaled 406 million barrels, up 1.6 million from the previous week and a significant 30 million from a year ago, a development contrary to expectations following the OPEC+ production cuts.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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