Oil prices exhibited limited changes on Tuesday against a backdrop of uncertainties surrounding OPEC+ voluntary output cuts, ongoing tensions in the Middle East, and subdued economic data from the United States. Brent crude futures experienced a marginal decrease of 1 cent, reaching USD 78.02 a barrel, while U.S. West Texas Intermediate crude futures saw a modest uptick of 5 cents, settling at USD 73.09 a barrel by 0402 GMT.
Saudi Arabia’s impact on market sentiment
Saudi Arabia’s energy minister’s remarks suggesting the potential continuation of OPEC+ production cuts beyond the first quarter of 2024 provided some support to the market. This commentary by Saudi Arabia’s energy minister, Kelvin Wong, contributed to market sentiment amid ongoing discussions within the OPEC+ alliance.
Previous session dynamics
In the preceding trading session, oil prices experienced a decline as market participants expressed skepticism about the efficacy of OPEC+ supply cuts. Additionally, the strengthening U.S. dollar exerted pressure on commodity prices, including oil, with CMC Markets analyst Tina Teng highlighting the inverse relationship between the dollar’s strength and oil demand. A robust dollar often leads to increased oil expenses for holders of alternative currencies, potentially impacting overall oil demand.
OPEC+ output cut agreement
OPEC and its allies, collectively referred to as OPEC+, recently reached an agreement on voluntary output cuts amounting to approximately 2.2 million barrels per day (bpd) for the initial quarter of 2024. Notably, Saudi Arabia played a pivotal role by maintaining its existing voluntary production cut. However, around 1.3 million bpd of the agreed-upon cuts constituted an extension of voluntary restrictions already implemented by Saudi Arabia and Russia.
Geopolitical concerns and supply disruptions
The resumption of hostilities in the Israel-Hamas conflict and attacks on three commercial vessels in the southern Red Sea heightened concerns about oil supply disruptions. These incidents followed a series of attacks in Middle Eastern waters since the commencement of hostilities between Israel and Hamas on October 7. Geopolitical tensions in the region continue to be a focal point for oil market participants.
US economic data impact
On the economic front, data released on Tuesday revealed a more substantial-than-expected decline in U.S. factory orders for October, marking the most significant drop in over three years. This data contributed to a sense that elevated interest rates might be curbing spending, influencing sentiment within the oil market.
Against the backdrop of OPEC+ deliberations, geopolitical tensions, and economic indicators, oil prices demonstrated minimal fluctuations. The market remains influenced by a delicate balance between production agreements, global conflicts, and economic considerations, shaping the trajectory of oil prices in the near term.