Oil Prices Decline as Market Weigh OPEC+ Decision
Oil prices dipped again in the global commodities market due to weak data from top consumers at the time the Organisation of Petroleum Exporting Countries and allied producer members agreed to output extension.
Brent price fell to $71.24 per barrel on Friday, while West Texas Intermediate (WTI), the American benchmark, declined to $67.38 a barrel at the same time.
Weak economic data from both the US and China added further downward pressure. Also, OPEC+ confirmed that its 2 million barrels per day (bpd) production cut would be extended until December 31, 2026.
As part of the adjustments, the group also confirmed that the total production from its member countries will be capped at 39.725 million bpd in 2025 and 2026.
At the meeting, some countries voluntarily agreed to extend their individual cuts of 1.65 million bpd until the end of 2026. Saudi Arabia, Russia, Iraq, the United Arab Emirates (UAE), Kuwait, Kazakhstan, Algeria, and Oman collectively committed to a 2.2 million bpd production cut, which will remain in effect until March 2025.
In the US, the number of first-time unemployment claims increased by 9,000 to 224,000 last week, surpassing market expectations of 215,000.
This uptick, as reported by the US Department of Labor on Thursday, raised concerns about an economic slowdown in the world’s largest oil consumer.
Also, in China, economic growth showed signs of further deceleration. The country reported a 4.8% expansion for the first nine months of 2024, falling short of its 5% annual growth target.
The official purchasing managers’ index (PMI) for China, a key indicator of economic activity in the services sector, fell by 0.5 points month-on-month, signalling renewed pressures on the broader economy. The non-manufacturing PMI, which tracks the services sub-index, remained flat at 50.1, pointing to a lack of significant momentum in the sector.
These persistent signs of weak domestic demand and ongoing deflationary pressures in the world’s largest oil-importing country are dampening oil demand expectations.
Meanwhile, rising expectations that the U.S. Federal Reserve might reduce interest rates in December have also provided some support for oil prices.
After Fed Chairman Jerome Powell noted that the strong state of the US economy allows for a more cautious approach to rate cuts, the market is closely watching the upcoming non-farm payroll data for further clues about the Fed’s future monetary policy.
The probability of a 25 basis-point rate cut by the Fed at its December 18 meeting remains high, currently at 72%. The market also faces price supply risks due to rising tensions in the Middle East.
Geopolitical tensions in the Middle East continue to weigh on market sentiment. Ongoing clashes and ceasefire violations between Israel and Hezbollah have raised concerns about potential disruptions to oil supplies. The conflict in Syria, marked by rebel offensives, adds another layer of uncertainty, with risks to production hubs in the region.
While these tensions have yet to result in significant supply disruptions, the possibility of escalation remains a factor that traders are monitoring closely. U.S. diplomatic efforts to mediate in the Israel-Gaza conflict further highlight the region’s complex and volatile dynamics. Naira Plunges on Suboptimal FX Intervention
