Oil prices ease as reports of outsized cuts overshadowed by bearish concerns

Earlier today, Reuters noted that in their much awaited meeting, OPEC+ members had reportedly agreed to a substantial cut in future oil production.

As per the report,

In the run up to the meeting, market expectations lay between 1-2 million bpd.

As a result, WTI and Brent benchmarks posted session highs of $79.6 and $84.6, respectively, sustaining the upward momentum of oil prices earlier in the week.

Oil contracts had risen for two consecutive sessions following the surprise rescheduling of the OPEC+ meeting as news of a disagreement on production cuts emerged.

The focus has been on African member nations, particularly Nigeria and Angola, in regard to output quotas.

However, despite registering strong upward momentum earlier today, as deliberations stretched on, WTI and Brent prices moderated and are now trading at $78.6 and $83.9, respectively.

Uncertain dynamics

As of date, roughly 5 million bpd of oil output has already been taken offline by the multilateral body which currently accounts for nearly 40% of global production.

However, the price optimism of additional cuts seem to have given way among concerns that China’s manufacturing crisis is continuing to deepen, as shown in China's official NBS data in the graph below.

Further, US crude oil inventories have been considerably higher than anticipated, pointing to weaker global demand, declining by just over 800,000 barrels in the most recent report, as compared to industry expectations of 2 million barrels.

 Gasoline reserves have also seen a significant rise in the past two weeks fueling bearish sentiments.

In addition, combined cuts of nearly 1.3 mn bpd operationalized by Saudi Arabia and Russia are expected to expire at the end of the year, while the United Arab Emirates, another key player, has increased its production capacity.

Outlook

With an official announcement yet to be made, oil prices took a bit of a U-turn after showing a robust upward trajectory earlier in the session.

Expectations of a cut of over 1mn bpd appear to have declined significantly, although markets continue to monitor the situation closely.

The final decision taken by OPEC+ will not only impact near term technical factors and price trends but could affect supply changes well into 2024 as well.