Crude oil prices continued their downward trend, marking a sixth consecutive weekly drop as concerns over global oversupply persisted despite the recent output cuts announced by the Organization of the Petroleum Exporting Countries and its allies (OPEC+).
West Texas Intermediate (WTI) experienced a 2.5% decline, settling near US$74 a barrel, following a 2.4% slide in the previous session. OPEC+ declared approximately 900,000 barrels a day in fresh output cuts for the upcoming year. However, these cuts remain voluntary, with reports indicating that Angola has already rejected its assigned quota. The United States witnessed a rise of five oil rigs in the latest week, underscoring the ongoing increase in the nation’s record-high oil production.
Algorithmic selling played a significant role in the Friday sell-off, triggered by intraday models once WTI and Brent fell below key technical levels of US$75 and US$80, respectively, late in the session. Notably, about 5,000 lots of US$40/US$30 bearish put spreads in Intercontinental Exchange WTI for June were traded on Friday as traders sought protection against a potential substantial decline in prices. The choppy trading was also influenced by lower volumes typical of end-of-week trading.
Despite initial optimism on Thursday about the OPEC+ preliminary agreement helping to curb an anticipated surplus in the early months of the next year, market sentiment turned negative due to a lack of clarity from the meeting and doubts about full implementation of the announced cuts.
Daniel Ghali, a commodity strategist at TD Securities, stated, “Market concerns about compliance may be overblown, but poor communication from the OPEC+ meeting contributed to the downside in oil markets over the last sessions.” He added, “However, as the dust settles, we estimate that the agreement may nonetheless be sufficient to skirt an expected surplus over the coming months.”
The week concluded with the U.S. benchmark down nearly 2%, maintaining its trading range observed throughout November. Prices have shifted to a lower band compared to previous months, reflecting concerns over surging supplies outside the producer group and the potential for a market surplus in the first quarter.
Brazil, a contributor to the global supply increase, announced its intention to join the OPEC+ alliance cooperation charter next year but clarified that it won’t participate in any immediate production cuts.
Describing the outcome of the OPEC+ meeting as a “confusing, entangled mess,” Vandana Hari, founder of Vanda Insights, expressed disappointment over the voluntary nature of the announced cuts. She highlighted the uncertainty surrounding whether the additional 900,000 barrels a day in cuts would be fully delivered over the first quarter.