Oil prices stabilize after OPEC-induced losses; Powell speech eyed

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Investing.com — Oil prices stabilized Friday, after the previous session’s losses on disappointment over the size of the output cuts by a group of top producers as well as concerns over worsening demand in China, the world’s top importer. 

By 09:05 ET (14.05 GMT), the U.S. crude futures traded 0.1% higher at $76.00 a barrel and the Brent contract dropped 0.1% to $80.78 a barrel. 

Both benchmarks fell around 2% on Thursday, resulting in losses over the course of November of over 6%, the second consecutive losing month.

OPEC+ agrees further output cuts

The Organization of the Petroleum Exporting Countries and allies, including Russia, a group known as OPEC+, agreed on Thursday to remove around 2.2 million barrels per day of oil from the global market in the first quarter of next year, which included a rolling over of Saudi Arabia and Russia’s current 1.3 million barrels per day of voluntary cuts.

“We had already assumed the rollover of the Saudi and Russian cuts into 1Q24, as had most of the market,” said analysts at ING, in a note. “Therefore, new additional cuts of a little under 900Mbbls/d will be seen in 1Q24. These additional voluntary cuts will be brought back gradually to the market after 1Q24 depending on market conditions.”

Markets had been pricing in a larger cut, while the voluntary nature of the reductions has created a degree of confusion over the actual extent of future supply levels. 

“These voluntary cuts suggest that it is becoming difficult for members to agree on OPEC+ cuts. Therefore, if further action is needed in future, it will become increasingly difficult for the group to respond,” ING added.

Chinese economic concerns 

Weak official purchasing managers index data from China have added to pressure on oil markets.

While a private survey released on Friday showed some improvement in manufacturing activity, China’s biggest economic engines still faced an uphill battle to reach pre-COVID levels.

This fueled concerns that worsening economic conditions will dent global crude demand, especially as readings earlier this week also showed sustained weakness in the eurozone and Japan. 

Powell speech could move the dollar

Strength in the dollar has also pressured crude markets, after the greenback rebounded from more than 3-month lows in anticipation of an address by Federal Reserve Chair Jerome Powell later Friday. 

The Federal Reserve’s preferred inflation measure rose at a slower rate on an annual basis in October compared to the prior month, rising 3.0% annually compared with 3.4% in September, thanks in large part to a drop in energy prices. 

Traders will be looking to see if Powell tries to rein in market expectations of rate cuts next year. The Fed enters its blackout period on Saturday before its Dec. 14 announcement, and will have a tough job getting the market to believe him when he says that interest rates will stay high through 2024.

(Ambar Warrick contributed to this article.)