The oil market is going through a weak patch as the Organization of the Petroleum Exporting Countries squabbles over output quotas. Prices, however, are unlikely to stay low for too long.
The cost of crude slipped more than 5% in November after tanking 10% in October. Prices are on track for their worst year since 2020, when the Covid-19 pandemic crippled energy demand.
It’s clear why OPEC felt the need to act this week, but the announcement of new voluntary restrictions on production looked underwhelming. The cartel is having trouble maintaining unity as some members want to keep output high to maximize revenue even though all producing nations benefit when global prices are strong.
Worries about global demand also will persist into next year.
Deutsche Bank
sees a risk of a U.S. recession, and China is still struggling to recover from its late emergence from Covid lockdowns. U.S. output also climbed to a monthly record of 13.2 million barrels a day in September, the Energy Information Administration reported Thursday.
Still, analysts at Goldman Sachs said that prices won’t drop too much. OPEC will be able to keep a floor under prices, and those outside the cartel such as the U.S. have a limited capacity to increase supplies.
“We continue to expect that solid demand growth, a slowdown in U.S. supply growth, and low OPEC supply will keep Brent in the $80-100 range in 2024,” said Goldman analysts led by Daan Struyven in a note Friday.
West Texas Intermediate, the U.S. standard, was slipping 0.3% to $75.72 a barrel early Friday. Brent crude, the international standard, declined 0.5% to $80.46 a barrel.
Write to Brian Swint at [email protected]
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