Oil prices plunged for the sixth consecutive week on December 2, primarily in response to an OPEC+ meeting during which several members agreed to voluntary production cuts instead of a group-wide reduction. U.S. crude futures tumbled by 0.11% to $75.88 per barrel, while Brent crude futures dropped by 0.32%, bringing the price per barrel to $80.60. This voluntary reduction totals 900,000 barrels per day, in addition to Saudi Arabia's ongoing voluntary cut of one million barrels per day, which is slated to persist till the end of Q1 2024.
Unfulfilled Expectations and Market Response
Despite the anticipation surrounding the OPEC+ meeting, traders remained sceptical about the producers' commitment to fully deliver the agreed production cuts. The consensus to reduce approximately 2.2 million barrels per day (bpd) in Q1 2024, which incorporated Saudi Arabia's widely expected extension of 1 million barrels per day voluntary cut and Russia's 300,000 barrels per day cut to crude exports, failed to satiate market expectations. The market reacted bearishly after the announcement, questioning the enforceability of these voluntary cuts.
Voluntary Cuts: A Matter of Concern
The decision to make these cuts on a 'voluntary' basis has raised concerns about their implementation, particularly from smaller producers. Several OPEC+ countries, including Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman, have consented to voluntarily cut oil production by a total of 2.2 million barrels per day in Q1 2024. Saudi Arabia, the world's largest crude oil exporter, will spearhead this effort by extending a voluntary production cut of 1 million barrels per day for another three months. Additionally, the group announced that Brazil would join at the beginning of next year.
Skepticism Surrounding Implementation
Although OPEC+ agreed on a fresh oil production cutback of about 900,000 bpd, crude prices continued their downward trajectory. Traders remained doubtful whether these cuts would be fully implemented. The outlook for oil has weakened amid ample supplies and a deteriorating economic backdrop. The market is also keeping a close eye on global manufacturing activity, which has remained weak due to poor demand.