Crude oil prices started the week by trading around $74.70 per barrel, with Brent crude dropping to around $80 per barrel.
Investors and markets await the OPEC+ meeting scheduled later this week to reach an agreement on voluntary supply cuts until 2024.
Despite a slight price increase last week, the first weekly gain in five weeks, supported by expectations of Saudi Arabia and Russia extending voluntary supply cuts, OPEC+ is discussing plans for further reductions. However, prices declined mid-week after OPEC+ postponed a ministerial meeting to November 30 to reconcile production targets in African countries.
Market sentiment remains negative due to internal disputes within OPEC+ regarding production quotas. Despite expectations that Saudi Arabia will extend its additional voluntary cut by one million barrels per day into the next year, oil prices are under pressure due to oversupply expected in the first quarter of 2024. Ahead of the OPEC+ meeting, estimated exports for OPEC+ countries have decreased to 1.3 million barrels per day, aligning with OPEC+ supply targets.
The expectation is for the extension of unilateral cuts by Saudi Arabia and Russia until at least the first quarter of 2024. The United Arab Emirates, however, plans to increase crude oil exports early next year, compensating for the reductions by Saudi Arabia and Russia, maintaining current price momentum.
The International Energy Agency anticipates a slight surplus in global oil markets in 2024, even if OPEC+ extends its cuts into the next year. With this forecast, there will be only a 0.9 million barrels per day surplus next year, requiring OPEC+ to exert more effort to control or stabilize supply to alleviate market concerns of a significant surplus in crude oil markets next year, increasing negative pressure on prices.
It is worth noting that crude oil prices stabilized after the easing of geopolitical tensions in the Middle East following a ceasefire in Gaza and a hostage exchange.
In my opinion, the primary scenario in oil markets now involves a lack of stringent measures by responsible international organizations to support oil prices. Recent disappointing data from China, revealing that economic recovery will not occur in 2023, clearly indicates that high demand is absent, adding a negative pressure factor to the markets.
As the OPEC+ meeting coincides with the start of COP28 in Dubai, the market prices are in expectation of OPEC+ decisions. Even if OPEC+ extends current production cuts, it will unlikely lead to a price increase. The organization needs to issue a significant and bold strategy to regain credibility.