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Oil falls to lowest level since July ahead of Opec+ meeting

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Oil prices slumped to their lowest levels since early July on Thursday, putting pressure on the Opec+ group of major oil producers to consider extending and deepening production cuts when they meet in 10 days in Vienna.

Brent crude, the international oil benchmark, fell 4.6 per cent on Thursday — one of the biggest daily declines this year — to settle at $77.42 a barrel, below the $80 level at which government budgets start to strain for Saudi Arabia and Russia. The US benchmark West Texas Intermediate fell 5.5 per cent to $72.48 a barrel.

The drop in prices builds pressure on Saudi Arabia, Russia and other members of Opec+ ahead of their meeting on November 26, when they will consider how to respond to weakening oil prices and concerns that a potential stumble in global growth could hold back demand.

“There may be some testing ahead of the Opec+ meeting. In the past they have on regular occasions announced cuts or extended cuts with prices in the $82-85 range,” said Daan Struyven, head of oil research at Goldman Sachs. “Our current expectations are that the Saudi cut gets extended fully to the first half of next year, with no expectation of group cuts.”

Oil prices have been under pressure for much of 2023, but they began to rise in the summer after Saudi Arabia and Russia led the Opec+ group by making additional cuts to output and exports. Saudi Arabia made its first of several further voluntary cuts to production in July and has said it would continue with the measures until at least the end of the year.

On Tuesday, the International Energy Agency said the oil market should return to surplus in early 2024, even if Saudi Arabia extends its production cuts this year.

Supply has continued to grow outside of the Opec+ nations, with the US, Guyana and Brazil all boosting their oil output. Brazil’s government has set a target to become the world’s fourth-largest oil producer by 2029.

The cuts “have been simply resulting in a lower market share from Opec+”, said Edward Gardner, a commodities economist at Capital Economics. “These price falls are due to a shift in the supply-and-demand balance. Supply doesn’t seem to be as constrained as expected.” 

On Wednesday, the US Energy Information Administration reported that oil inventories in the world’s largest economy grew by 3.6mn barrels last week to a total of 421.9mn, far exceeding the expectations of analysts polled by Reuters, who forecast an increase of 1.8mn barrels.

“It’s now up to Opec+ to give strong signals in their upcoming meeting,” said Bjarne Schieldrop, chief commodities analyst at SEB. “I think Saudi Arabia will demand Kuwait, Iraq and the UAE chip in additional cuts, and that will be a painful discussion.”

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