Oil prices held steady as concerns surrounding global demand offset potential supply cuts by the OPEC+ coalition. The coalition, consisting of the Organization of the Petroleum Exporting Countries (OPEC) and Russia, had agreed to output cuts of approximately 2.2 million barrels per day for Q1 2024. However, analysts at energy consultancy FGE expressed skepticism, stating that the cuts were below market expectations and predicting actual cuts closer to 500,000 barrels per day. Additionally, the implementation of the production cuts may take some time, as emphasized by the Kremlin. In efforts to stabilize prices, Saudi Arabia, the top oil exporter, lowered the price of its Arab Light crude to Asian customers for the first time in seven months. The move was prompted by concerns over supply overhang in the physical market.
On the global stage, the COP28 climate conference discussed the formal phase-out of fossil fuels as part of a comprehensive deal to combat climate change. Meanwhile, the United States experienced a rise in the value of the dollar against other currencies, potentially reducing oil demand by increasing its cost for buyers using alternate currencies. However, the declining labor market and subsiding inflation in the US have led to speculation that the Federal Reserve may pause interest rate hikes, with financial markets anticipating a rate cut in mid-2024. This could boost oil demand by decreasing the cost for consumers to borrow money, therefore enhancing their purchasing power.
In the European market, the ECB’s board member suggested that further interest rate hikes might not be required, given the notable decrease in inflation. Additionally, major Chinese state-owned banks actively purchased the yuan to prevent excessive depreciation following Moody’s negative outlook rating for China.
In conclusion, oil prices remained stable due to concerns surrounding global demand, which offset the potential impact of supply cuts by the OPEC+ coalition. The market awaited clearer indications regarding the effectiveness and timeline of the announced cuts. The various global factors, including the COP28 conference, the US labor market, dollar strength, and ECB policy decisions, added to the complexity of the oil market dynamics.
