Oil stays stable ahead of decisions about interest rates, and supply cuts from OPEC+

12 Dec 2023 , 09:38 AM

Tuesday’s oil prices were stable ahead of important pronouncements about inflation and interest rate policy. There were also concerns that production cuts by OPEC+ later in the year would not be enough to balance the surplus of petroleum and the slower rise in gasoline consumption.

The price of Brent crude futures for February remained unchanged at $76.03 per barrel, while the price of U.S. West Texas Intermediate crude futures for January delivery increased by 3 cents to $71.35 per barrel.

On Monday, both contracts ended the day slightly higher; Brent was up 19 cents at $76.03 a barrel, while WTI was up 9 cents at $71.32.

For the first quarter of 2024, OPEC+—the Organization of the Petroleum Exporting Countries and its allies—have committed to reducing production by 2.2 million barrels per day (bpd). However, given that non-OPEC countries’ planned output growth will result in excess supply the next year, investors are still skeptical that the overall supply will decline.

While WTI fell from above $77 per barrel at the beginning of December, Brent crude prices fell from above $80.

For the first several months of 2024, both WTI and Brent are in a contango market structure, where forward-looking contracts are worth less than forward-looking ones. This suggests that investors believe there is a sufficient supply of crude for those months or a decreased demand for it.

A draft of a possible climate agreement at the COP28 conference on Monday included actions countries may take to reduce greenhouse gas emissions, but it left out the phase-out of fossil fuels, which many countries have wanted. This has angered the US, the EU, and countries that are vulnerable to climate change.

OPEC members are opposing a coalition of more than 100 nations that has been attempting to reach an agreement that would, for the first time, guarantee an end to the oil age.

In addition to the COP28 meetings, the market is monitoring this week’s interest rate policies of major central banks as well as U.S. inflation statistics.

On Tuesday, the U.S. Consumer Price Index (CPI) report is due, and on Wednesday, the Federal Open Markets Committee (FOMC) will conclude its two-day monetary policy meeting.

The European Central Bank (ECB) on Wednesday and the Bank of England (BoE) on Thursday are also anticipated to make announcements about interest rates.

News reports said on Monday that demand for Saudi Arabian crude oil for January from refiners in China, the largest oil importer in the world, is at its lowest point in five months as buyers seek for cheaper supply elsewhere due to higher-than-expected prices.

Russia and Saudi Arabia vie to be China’s top oil suppliers.

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