(New York) Brent crude, the benchmark crude, fell to its lowest level since March 2023 on Friday as OPEC+’s continued production cuts failed to offset demand anxiety.
A barrel of North Sea Brent crude for November delivery fell 2.24% to $71.06. Earlier, it had fallen to $70.61, the first time in more than 17 months.
Its American equivalent, West Texas Intermediate (WTI) with maturity in October, fell by 2.14% to 67.67 dollars, after testing a 14-month low.
By approaching the psychological threshold of 70 dollars, Brent nevertheless triggered a technical reaction which allowed prices to limit the damage.
“Increased recession fears” are keeping oil in negative territory, “despite OPEC’s postponement of its October supply increase plan,” said Han Tan, an analyst at Exinity.
Under pressure from the recent fall in prices, eight members of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed on Thursday to postpone the schedule for increasing their production by two months.
In June, OPEC+ initially announced that they would gradually roll back these cuts, at a rate of 180,000 barrels per day added each month starting in October.
But the alliance’s change of strategy “does not impress the oil market,” DNB analysts point out. “There is no room for OPEC’s additional barrels” in 2025.
“What was surprising was not the postponement, but the fact that it was only for two months when they could have at least gone until the end of the year,” commented Andy Lipow, of Lipow Oil Associates.
“We see no signs that the OPEC decision has halted the decline in the supply risk premium,” said Daniel Ghali of TD Securities.
As “demand sentiment weakens, pressure continues to be exerted on prices,” the analyst continued.
One more bad indicator
For several weeks, a series of Chinese indicators have continued to depict a bumpy economy, far from the rebound announced for almost two years now.
At the same time, in the United States, the world’s largest consumer of black gold, the economic situation is clearly deteriorating, due to high interest rates.
In this context, “the employment report did not help,” Andy Lipow said.
According to the Labor Department, the U.S. economy created only 142,000 jobs in August, less than the 175,000 expected by economists, with figures for June and July also revised sharply downward.
The price drop highlights the limits of the alliance. “OPEC ‘can influence supply but not demand, and weak demand is currently the main concern and driver of the observed price weakness,’ insists Ole Hansen of Saxo Bank.
“For OPEC to succeed in supporting oil prices, it must completely abandon the ambition of adding barrels to the market and be very clear about its willingness to further reduce its production,” DNB analysts continue.
“The two-month postponement of the announced increase in production, which does not resolve anything, could be a sign of growing tensions within the group,” they also note.
Because in addition to not being able to stop the fall in crude prices, exporting countries must face competition with the rise of other oil nations such as the United States, Brazil and Guyana.
And by maintaining limited production against all odds with the objective of higher prices, OPEC+ is “unintentionally giving up market share to other producers,” recalls Kieran Tompkins of Capital Economics.
“I wouldn’t be surprised,” Lipow warns, “if in November they decide to push the (production) increases back even further.”
The lack of reaction from operators to the OPEC+ announcement on Thursday also reflects the circumspection of a market accustomed to several members of the cartel deviating from the commitments made by the alliance.
In recent months, Iraq and Kazakhstan have notably deviated from their set targets and exceeded their quotas.
“The market always says to OPEC: Show me the production cuts before I believe you,” said Andy Lipow.