A Petroleos de Venezuela SA oil pumpjack on Lake Maracaibo in Cabimas, Zulia state, Venezuela, on Friday, Nov. 17, 2023.
Gaby Oraa | Bloomberg | Getty Images
U.S. crude fell more than 2% on Thursday, erasing early gains, as traders grew more convinced that OPEC+, a group composed of OPEC plus its oil-producing allies, will not deliver on promised output cuts.
The West Texas Intermediate contract for January fell $1.98, or 2.54%, to $75.88 a barrel, while the Brent contract for January lost 25 cents, or 0.3%, to trade at $82.85 a barrel.
OPEC+ released a statement Thursday that did not formally endorse production cuts, but individual countries started announcing voluntary reductions afterward with Saudi Arabia, the linchpin and largest member, leading the way.
Riyadh agreed to extend its voluntary production cut of one million barrels per day through the end of the first quarter of 2024, a source in the Energy Ministry told the Saudi Press Agency.
Russia deepened its voluntary supply cut to 500,000 bpd through the end of the first quarter, according to a statement from Deputy Prime Minister Alexander Novak.
Traders are concerned that the cuts are voluntary and not mandatory, raising the question of whether OPEC+ can really follow through and curtail output, according to Phil Flynn, an analyst with the Price Futures Group.
“The proof is going to be in the pudding,” Flynn said. “Instead of having a clear answer to what is going to happen we only have a promise — the promise is making people nervous,” Flynn said.
OPEC+ has a major problem when it comes to cohesion and compliance on output cuts, said John Kilduff with Again Capital.
“Cheating is their middle name when it comes to these situations — OPEC that is,” Kilduff told CNBC’s “Squawk on the Street” Thursday morning. “They’re like dieters around a dessert table in terms of trying to hold together and comply — they don’t have a good track record with it.”
Kilduff said OPEC+ is getting squeezed by record production from nations including the U.S. and is losing market share in Asia, where demand growth is struggling due to economic headwinds in China.
“They have a big problem on their hands,” Kilduff said of OPEC+ and Saudi Arabia in particular. “They have their hands full and to me it’s not going to prove to be a winning strategy for them,” he said of the output cuts.