The oil prices fell to their lowest level since early July, forcing the Opec+ major oil producers group to reconsider extending and intensifying production cuts at their meeting in Vienna in 10 days.
Brent crude, the oil international benchmark, dropped 4.6 percent on Thursday, one of the largest daily declines in this year. It settled at $77.42 per barrel, just below the $80 mark at which Saudi Arabia’s and Russia’s government budgets begin to be squeezed. The US benchmark West Texas Intermediate dropped 5.5 percent to $72.48 per barrel.
The fall in oil prices puts pressure on Saudi Arabia and Russia, as well as other members of OPEX. They will meet on November 26 to discuss how to deal with the weakening of oil prices and fears that global growth may slow down.
There may be some testing before the Opec+ Meeting. Daan Struyven is the head of Goldman Sachs’ oil research. In the past, they announced regular cuts or extended reductions with prices between $82-85. Our current expectation is that the Saudi cut will be extended to the first half next year with no group cuts.
The oil price has been in decline for most of 2023. However, they have begun to rise this summer as Saudi Arabia and Russia lead the Opec+ group with additional cuts to exports and output. Saudi Arabia announced in July that it would be continuing its voluntary production cuts until the end of this year.
International Energy Agency stated on Tuesday that the oil market will return to surplus by early 2024 even if Saudi Arabia continues its production reductions this year.
The supply of oil has increased outside the Opec+ countries, as the US, Guyana, and Brazil have all increased their output. Brazil has set an ambitious goal to become the fourth largest oil producer in the world by 2029.
Edward Gardner, an economist for Capital Economics and a commodities expert, said that the cuts have “simply resulted in a smaller market share by Opec+”. These price drops are the result of a shift in supply and demand. The supply doesn’t appear to be as constrained at all.”
The US Energy Information Administration announced on Wednesday that the oil inventory in the largest economy of the world grew by 3.6mn barils last week, to a total 421.9mn. This was far more than the analysts surveyed by Reuters who predicted an increase of 1.8mn bars.
Bjarne Shieldrop is the chief commodities analyst for SEB. He said that Opec+ must now send strong signals at their next meeting. “I believe Saudi Arabia will insist that Kuwait, Iraq, and the UAE contribute additional cuts. That will be a difficult discussion,” said Bjarne Schieldrop, chief commodities analyst at SEB.