Oil prices experienced a decline of more than 2% in the previous session as concerns lingered among investors regarding the depth of supply cuts announced by the Organization of the Petroleum Exporting Countries and its allies (OPEC+). The skepticism arises from OPEC+ agreeing to remove around 2.2 million barrels per day (bpd) of oil from the global market in the first quarter of the next year, with the total including a rollover of Saudi Arabia and Russia’s 1.3 million bpd of current voluntary cuts. Analysts suggest that the voluntary nature of these cuts has led to doubts about full implementation and measurement basis.
Global Economic Concerns Impacting Oil Demand
The decision by OPEC+ to reduce output comes as a response to falling oil prices, which dipped from about $98 a barrel in late September due to worries about the impact of sluggish economic growth on fuel demand. US manufacturing remained subdued, with factory employment seeing a decline in November, according to surveys. The weak global manufacturing activity is a significant factor, with investors closely monitoring its continuation during the month driven by poor demand.
Additional Factors Contributing to Price Slide
In addition to the skepticism over OPEC+ supply cuts and global economic concerns, several other factors contributed to the decline in oil prices. The US imposed additional sanctions related to the price cap on Russian oil, targeting entities and oil tankers. Geopolitical tensions also played a role, with talks to extend a week-long truce between Israel and the Palestinian militant group Hamas collapsing, prompting a resumption in the conflict in Gaza. While these factors raised initial concerns about potential disruptions to oil supply, the conflict has not significantly impacted global oil flows.
Conclusion
The combination of skepticism over OPEC+ supply cuts, worries about global economic growth impacting oil demand, and geopolitical tensions has led to a more than 2% decline in oil prices. Analysts emphasize the voluntary nature of production cuts, raising doubts about their full implementation, and underscore the importance of economic indicators influencing the oil market.