Oil prices moved lower on Monday for the third consecutive session even as OPEC+ cut production.
The outlook for global oil demand has weakened, and crude prices have dropped two months in a row.
Meanwhile, energy firm Kpler expects Saudi Arabia to keep its 1 million barrel-a-day cuts through all of 2024.
The group of the world’s largest oil producers and their allies keep promising to cut production, but that hasn’t done much to prop up US and international oil prices in recent months.
Crude oil prices dropped on Monday, adding to a streak of recent declines despite the Organization of Petroleum Exporting Countries and its allies announcing plans for production cuts at the group’s latest meeting.
West Texas Intermediate declined 0.81% to $73.47 a barrel while Brent crude, the international benchmark, moved lower 0.56% to $78.44 a barrel. Prices have fallen two months in a row.
The two oil benchmarks had moved higher following Saudi Arabia’s energy minister, Prince Abdulaziz bin Salam, comments to Bloomberg that production cuts could stay on the table past March, but moved lower again shortly after.
OPEC+ last week announced a deal to reduce supply by more than 2 million barrels a day, with roughly half coming from Saudi Arabia. How long those cuts will last will depend on market conditions, the group said.
“The reason the prices have come off not just in the last few days but in the last few months, is because of demand weakness but also because of supply strength,” Kpler’s lead oil analyst for the Americas, Matt Smith, told Business Insider.
Kpler forecasts Saudi Arabia will keep its one million barrel-a-day cut through all of 2024.
“While you have OPEC+ cutting production, you have a variety of countries that are increasing production outside the group, and also inside too actually,” Smith added. “The US has increased, Canada, Guyana, Brazil. And ironically, you have Venezuela and Iran within OPEC increasing. Basically you have OPEC+ making room for non-OPEC supply, while the demand picture starts to soften.”
Because the cuts are voluntary, however, the move down in price reflects doubt in the market as to whether producers will fully commit to them.
Meanwhile, oil production in the US set records for two months in a row, presenting a challenge to Saudi Arabia’s control of the market as the de facto leader of OPEC.
According to data from the Energy Information Administration, US crude and condensate production climbed by 224,000 barrels a day to hit 13.4 million barrels a day in September, month over month.
And over the prior three months, crude and condensate production increased by 342,000 barrels a day, or about 7% higher year-over-year in that stretch.
American producers have been able to take advantage of OPEC’s supply cuts over recent months, and have since captured more market share, per Reuters.
Craig Erlam, senior market analyst for OANDA, highlighted in a note last week after the cartel’s promise of reductions in oil output that Brent prices moving below recent lows of $77 would be a “very bearish development.”
While OPEC+ members agreed in principle to the cuts at last week’s meeting, some states said after that they were uncertain over whether they would comply.
“[I]t seems traders either aren’t buying that members will be compliant or don’t view it as being sufficient. Or, of course, that the lack of formal commitment hints at fractures within the alliance which could impact its ability to hit its targets, let alone cut further if necessary,” Erlam wrote.
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