Oil prices took a notable dip of over 2% on Thursday following a report from the Financial Times, which indicated that Saudi Arabia plans to unwind its voluntary production cuts starting December 1, potentially leading to a prolonged period of lower crude prices. This revelation, backed by insights from sources familiar with Saudi Arabia’s strategy, suggests a shift from the nation’s unofficial pricing goal of $100 per barrel in a bid to reclaim market share.
As a result of this news, West Texas Intermediate (WTI) crude dropped below $68 per barrel, while Brent crude, the global benchmark, saw a decline of up to 3%, trading around $71 per barrel. Rebecca Babin, a senior energy trader at CIBC Private Wealth, commented that the market’s reaction was anticipated, given that OPEC’s previous production cuts had previously shielded prices from falling further.
Since 2022, the Organization of the Petroleum Exporting Countries (OPEC), which includes leading oil-exporting nations like Saudi Arabia, has been implementing output cuts. However, the United States and other oil-producing countries have ramped up production. Last year, the U.S. set records in oil and gas production, contributing to a complex dynamic in the global energy market.
Babin also expressed skepticism about whether OPEC is ready to fully pivot back towards increasing production to regain market share, as some member countries have exceeded their output quotas this year. She noted, “This decision appears to be more about recalibrating the responsibility for OPEC’s production decisions,” emphasizing that it’s crucial for overproducing nations to adjust their output while allowing compliant countries to reinstate production.
Earlier in September, OPEC+—a coalition of OPEC members and non-members like Russia—postponed the planned reduction of voluntary cuts scheduled for October due to falling oil prices.
Market analysts had already been revising their price targets for Brent crude in anticipation of a surge in supply coupled with sluggish demand. Morgan Stanley revised its Brent price forecast downward for the second consecutive time in September, predicting an average of $75 per barrel for the fourth quarter, which is a step down from the earlier revised estimate of $80. Similarly, JPMorgan adjusted its fourth-quarter estimate from $85 to $80 per barrel, attributing the changes to oil’s underperformance observed in August.
September witnessed oil prices plummeting to their lowest levels since 2021, although there was a brief rally last week. To date, WTI is down about 3% and Brent around 4% for the year.
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