DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange retreated more than 1% on Monday as investors shrugged at reassurances by Saudi Arabia that production cuts of 2.2 million barrels per day (bpd) could be extended beyond the first quarter 2024 amid growing skepticism over transparency and enforcement of voluntary supply reductions by the United Arab Emirates and Russian Federation.

The oil complex kicked off the data-heavy week with another round of selling as investors turned increasingly bearish on the winter outlook for the oil market. During the week leading up to the Nov. 30 OPEC+ meeting, hedge funds and money managers purchased just 4 million barrels (bbl) of crude oil contracts, with market participants aggressively reducing their exposure to the WTI futures contract on NYMEX. Speculators and hedge funds reduced their long positions in WTI futures for nine consecutive weeks through Nov. 28, holding their smallest net long WTI positions since July.

A slowing demand outlook, building spare capacity and the inability of OPEC+ to deliver another round of production cuts will likely keep a tight lid on oil prices in the coming months, according to analysts.

Saudi oil minister Prince Abdulaziz bin Salman on Monday attempted to reassure the market that Russia and UAE would deliver on pledged export and production cuts that could potentially extend beyond the first quarter of 2024. But investors remained unconvinced.

Russia agreed to deepen its export cut from 300,000 bpd to 500,000 bpd 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 crude oil and 200,000 bpd refined product exports.

In the case of UAE, Sheikh Mohammed Faraj Al Mazroui lobbied aggressively to raise his country's production quota for 2024 after heavily investing to expand production capacity, risking a spat with the Saudi royal family. UAE won a 200,000 bpd increase in its production quota for 2024 in June, while agreeing last week to reduce output by 163,000 bpd, but there's skepticism UAE would adhere to voluntary guidelines.

Investment bank HSBC believes OPEC+ used up its "last bullets" on Nov. 30 when the group agreed on voluntary production cuts for the first quarter of 2024 bundled within a widely expected extension of Saudi-Russian supply curbs. According to the bank's analysis, the 24-nation coalition lacks a clear exit strategy on how to unwind those cuts into a clearly slowing global economy and rising spare capacity.

Global economic growth is projected to weaken to 2.7% next year, according to the latest report from the Organization for Economic Cooperation and Development, down from 2.9% estimated for 2023 as developed economies in Europe and North America likely flirt with a recession tied to tight monetary policy. A chorus of Federal Reserve officials last week signaled the United States would see a further slowdown in the coming months as the labor market loses its post-pandemic momentum.

Fourth quarter U.S. economic growth rate is estimated to have eased to 1.2% as of Dec. 1 from 5.2% for the third quarter, according to the Atlanta Fed GDPNow model.

This week's macroeconomic data releases include Job Openings and Labor Turnover Survey for October and the latest reading on U.S. services sector for November scheduled Tuesday morning, followed by November's employment report from the Department of Labor on Friday.

U.S. dollar index rebounded Monday ahead of the new round of macroeconomic figures, with the greenback rallying 0.43% against a basket of foreign currencies to 103.647, further pressuring the U.S. crude benchmark.

At settlement, NYMEX January WTI futures declined $1.03 to $73.04 bbl, while Brent February futures fell back $0.85 on the session to $78.03 bbl. NYMEX ULSD futures for January delivery slipped $0.0018 bbl to $2.6597 gallon, while RBOB futures gained $0.0131 to $2.1342 gallon.

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