Oil Prices ease as OPEC+ extends supply cuts amid demand concerns
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Oil prices dipped on Friday, with Brent crude trading at $71.88 per barrel and West Texas Intermediate (WTI) at $68.15 per barrel, as markets digest the impact of extended OPEC+ production cuts amid weak demand signals and global oversupply concerns.
OPEC+ Extends Cuts to 2026
On Thursday, the OPEC+ group announced a further extension of its deep production cuts through the end of 2026, delaying previously planned supply increases. The decision underscores challenges faced by the oil market, particularly with sluggish global demand growth, most notably in China, and rising non-OPEC output.
Extended Restraint: OPEC+—responsible for nearly half of the world's oil production—will now maintain reduced output levels until at least April 2025, pushing back initial plans to unwind cuts from October 2024. Market Impact: Despite Saudi Arabia keeping production in the low-9 million barrels per day (bpd) range, analysts at Macquarie project a 1 million bpd surplus in 2025 due to weaker demand and robust supply from non-OPEC producers. Global Demand Concerns Weigh on Prices
The oil market remains under pressure from below-trend demand growth and indications of oversupply:
China’s Slowing Demand: China's economic slowdown continues to weigh on the global oil market, dampening hopes for a significant rebound in consumption. Non-OPEC Supply Growth: Increased production from the US and other non-OPEC suppliers is forecast to meet tepid demand, reducing the necessity for OPEC+ to reverse voluntary cuts. Focus on US Nonfarm Payrolls
The market awaits the US Nonfarm Payrolls (NFP) report later on Friday, which could influence expectations for a Federal Reserve interest rate cut:
Rate Cut Bets: According to the CME FedWatch Tool, markets are pricing a 72% probability of a 25-basis-point rate cut at the Fed's upcoming December meeting. A strong payroll report could temper these expectations and weigh on oil prices by supporting the US Dollar.
Economic Signals: The report, coupled with China's upcoming central economic working conference (Dec. 11-12), could provide additional clarity on fiscal stimulus measures and their potential impact on global oil demand.
Outlook: Mixed Signals Ahead
Short-Term Drivers: OPEC+ Discipline: While the extended supply cuts have been priced in, they offer limited upside as demand concerns dominate. US Economic Data: A dovish Federal Reserve stance could support oil prices indirectly by weakening the US Dollar, while disappointing job data may amplify concerns over slowing economic activity. China Stimulus Measures: Speculation around China's fiscal policies could shift sentiment, especially if measures target consumption or industrial recovery.
Long-Term Challenges: Analysts expect oversupply to persist into 2025, driven by the imbalance between non-OPEC supply growth and lackluster global demand. Structural shifts in energy consumption and macroeconomic uncertainties will likely continue to cap price recoveries.
Key Levels to Watch: Brent Crude Support: $71.50 per barrel
WTI Support: $67.80 per barrel
Upside remains constrained near $75.00 for Brent and $70.00 for WTI without a marked improvement in demand dynamics. Oil markets remain delicately poised, with near-term price movements hinging on developments in macroeconomic data and policy announcements from both the US and China
OPEC+ Extends Cuts to 2026
On Thursday, the OPEC+ group announced a further extension of its deep production cuts through the end of 2026, delaying previously planned supply increases. The decision underscores challenges faced by the oil market, particularly with sluggish global demand growth, most notably in China, and rising non-OPEC output.
Extended Restraint: OPEC+—responsible for nearly half of the world's oil production—will now maintain reduced output levels until at least April 2025, pushing back initial plans to unwind cuts from October 2024. Market Impact: Despite Saudi Arabia keeping production in the low-9 million barrels per day (bpd) range, analysts at Macquarie project a 1 million bpd surplus in 2025 due to weaker demand and robust supply from non-OPEC producers. Global Demand Concerns Weigh on Prices
The oil market remains under pressure from below-trend demand growth and indications of oversupply:
China’s Slowing Demand: China's economic slowdown continues to weigh on the global oil market, dampening hopes for a significant rebound in consumption. Non-OPEC Supply Growth: Increased production from the US and other non-OPEC suppliers is forecast to meet tepid demand, reducing the necessity for OPEC+ to reverse voluntary cuts. Focus on US Nonfarm Payrolls
The market awaits the US Nonfarm Payrolls (NFP) report later on Friday, which could influence expectations for a Federal Reserve interest rate cut:
Rate Cut Bets: According to the CME FedWatch Tool, markets are pricing a 72% probability of a 25-basis-point rate cut at the Fed's upcoming December meeting. A strong payroll report could temper these expectations and weigh on oil prices by supporting the US Dollar.
Economic Signals: The report, coupled with China's upcoming central economic working conference (Dec. 11-12), could provide additional clarity on fiscal stimulus measures and their potential impact on global oil demand.
Outlook: Mixed Signals Ahead
Short-Term Drivers: OPEC+ Discipline: While the extended supply cuts have been priced in, they offer limited upside as demand concerns dominate. US Economic Data: A dovish Federal Reserve stance could support oil prices indirectly by weakening the US Dollar, while disappointing job data may amplify concerns over slowing economic activity. China Stimulus Measures: Speculation around China's fiscal policies could shift sentiment, especially if measures target consumption or industrial recovery.
Long-Term Challenges: Analysts expect oversupply to persist into 2025, driven by the imbalance between non-OPEC supply growth and lackluster global demand. Structural shifts in energy consumption and macroeconomic uncertainties will likely continue to cap price recoveries.
Key Levels to Watch: Brent Crude Support: $71.50 per barrel
WTI Support: $67.80 per barrel
Upside remains constrained near $75.00 for Brent and $70.00 for WTI without a marked improvement in demand dynamics. Oil markets remain delicately poised, with near-term price movements hinging on developments in macroeconomic data and policy announcements from both the US and China