DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange fell again on Friday, sending international crude benchmark below $79 a barrel (bbl) as market participants digested Thursday's announced voluntary production cuts from Organization of the Petroleum Exporting Countries (OPEC) and 14 allied producers outside the cartel that are not expected to meaningfully change market balances early next year.

Oil prices will likely remain range-bound between $70 and $100 bbl for most of 2024, according to a Goldman Sachs analysis, reflecting a slowing global economy tied to tighter financial conditions across countries that are part of the Organization for Economic Cooperation and Development and some unwinding of OPEC+ targets.

"Current negotiations among OPEC+ countries regarding their 2024 production quotas illustrate the difficult task at hand in balancing the market and could result in additional price volatility," said Goldman Sachs in a note to investors.

After a round of tense negotiations and a four-day delay, OPEC+ agreed Thursday to a voluntary output reduction of 696,000 barrels per day (bpd) from Jan. 1 through March 31, 2024. The reduction comes on top of extended production and export cuts of 1.5 million bpd from Saudi Arabia and Russia, the bloc's two largest producers. However, markets are skeptical that the actual production cut would match the stated 2.2 million bpd due to the voluntary nature of those cuts along with the entrenched flexibility for their implementation.

According to OPEC's official communique, "To support market stability, these voluntary cuts will be returned gradually subject to market conditions," meaning the cuts could be unwound sooner if market fundamentals call for it.

It's worth noting that although Brazil joined the OPEC+ coalition, it will not be cutting a single barrel from its current 3.7 million bpd production level. Another wild card is Russia which agreed to deepen its export cut from 300,000 to 500,000 bpd for the first quarter but from a May-June level that saw a record pace of oil and refined products exports. Furthermore, a 500,000 bpd cut consists of 300,000 bpd of crude oil and 200,000 bpd of refined product exports.

Aside from OPEC+ negotiations, markets monitored this week's comments from Federal Reserve officials regarding the path of U.S. interest rates next year. Currently, markets priced in as much as 100 basis points of rate cuts beginning in March 2024 and concluding in November 2024. That would bring the federal funds rates back towards a 4% by 4.25% target range.

U.S. dollar index fell to a three-month low of 102.380 on Wednesday before rebounding somewhat into the week's end after New York Federal Reserve Bank President Christopher Waller suggested the central bank could ease policy sometime next year should inflation continue towards its 2% target.

In a speech titled "Something Appears to Be Giving," Waller, one of the Fed's most hawkish officials, stated he is "increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%," adding "there's good economic arguments that if inflation continues falling for several more months, you could lower policy rate."

The fourth quarter U.S. economic growth rate is estimated to have slowed to 1.2% as of Friday from 1.8% on Thursday, according to the Atlanta Fed GDPNow model. The downgrade followed a bearish reading on domestic manufacturing released Friday morning from the Institute of Supply Management that showed activity remained in contraction for a second straight month in November with the outlook turning increasingly negative.

"The economy appears to be slowing dramatically. Customer orders are pushing out, and all efforts are being made to right-size inventory levels, both to mitigate carrying costs on pushed-out orders and to load up on inventory where costs are exploding, like cold-rolled steel," said a representative from the Computer and Electronic Products sector.

"Starting to feel softening in the economy, with labor still a challenge to backfill critical roles. The 2024 forecast looks challenging, especially from a cost perspective," said a representative from Chemical Products.

At settlement, NYMEX January West Texas Intermediate (WTI) futures declined $1.89 to $74.07 bbl, while Brent futures gapped down on the spot continuous chart with a $81.54 high to settle at $78.88 bbl as the February contract assumes the front month position.

NYMEX ULSD futures also gapped down on the spot chart with a $2.7617 high, settling the session at $2.6615 gallon. RBOB futures were down $0.0547 to $2.1211 per gallon on a spot continuous basis following the December contract's expiration Thursday afternoon.

Liubov Georges can be reached at liubov.georges@dtn.com.