Oil Slides After OPEC+ Reaffirms Extended Output Cuts

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby-month delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated losses early Wednesday after the OPEC+ Joint Ministerial Monitoring Committee reaffirmed Saudi Arabia and Russia will continue 1.3 million barrels-per-day (bp) production and export cuts through the end of 2023.

"Additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries to support the stability and balance of oil markets" said Russian Deputy Minister Alexander Novak in an official statement following the conclusion of the JMMC meeting. Russia this morning confirmed it would extend 300,000-bpd export cuts into November and December. In a separate statement published by Saudi Press Agency, Saudi Energy Minister Abdulaziz bin Salman Al Saud further reaffirmed the Kingdom would continue its 1-million-bpd production curb through the end of December. The kingdom's oil production would effectively average 9 million bpd in the fourth quarter -- the lowest level in nearly a decade. The Committee, however, made no further policy recommendation and no comments were made on potential cut extensions into early 2024.

In recent sessions, the oil complex came under selling pressure from a combination of a stronger U.S. dollar and concerns over rising interest rates across major global economies. The greenback dropped back from a 10-month high 106.719 reached earlier this week following a series of solid macroeconomic data suggesting the U.S. economy continues to be on firm footing despite aggressive rate hikes from the Federal Reserve.

The fresh figures, however, reinforced the narrative of "higher for longer" in U.S. interest rates after several Federal Reserve officials signaled they are prepared to raise interest rates again this year.

Cleveland Fed Bank President Loretta Mester said Monday one more interest rate hike of 25 basis points is needed this year to ensure inflation is easing towards its 2% target.

"Interest rates should remain high for long enough until the central bank assesses the impact of policy-tightening already in place," Mester added.

Supporting this view, Fed Governor Michelle Bowman projected interest rates would need to go up toward a 5.5%-5.75% target range by year-end if progress in lowering inflation slows.

Wednesday's move lower in the oil complex came despite the American Petroleum Institute data showing a large drop occurred in commercial crude oil inventory last week, while also detailing a better-than-expected build in gasoline stocks along with a surprise increase in distillate inventory. Further details of the report revealed commercial crude stocks tumbled 4.210 million barrels (bbl), missing expectations for stocks to remain largely unchanged. Inventories at the Cushing, Oklahoma, tank farm (delivery point for West Texas Intermediate futures) rose 705,000 bbl. Gasoline stocks increased 3.946 million in the week ended Sept. 29, far surpassing calls for a build of 300,000 bbl. Distillate inventory gained 349,000 bbl last week, also missing an expected decline of 400,000 bbl.

Next, oil traders will gauge through the weekly inventory report from the U.S. Energy Information Administration scheduled for 10:30 a.m. EDT release.

Near 7:45 a.m. EDT, WTI November futures on NYMEX declined $1.66 to trade near $87.60 bbl and the international benchmark Brent contract for December delivery dropped back to $89.42 bbl. NYMEX November ULSD futures retreated $0.0821 gallon to $3.1131 gallon and front-month RBOB futures declined $0.0501 gallon to $2.3100 gallon.

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

Liubov Georges