Oil prices spike in response to OPEC+ call for deeper cuts

December 08, 2023 (MLN): Global oil prices surged on Friday after Saudi Arabia and Russia called for more OPEC+ members to join output cuts.

However, prices remained on track for their seventh consecutive weekly decline on worries over a global supply surplus and weak Chinese demand.

Brent crude is currently trading at $75.22 per barrel, up by 1.14% on the day.

While West Texas Intermediate crude (WTI) is trading at $70.5 per barrel, up by 1.06% on the day.

Both benchmarks slid to their lowest since late June in the previous session, a sign that many traders believe the market is oversupplied. Brent and WTI are also in contango, a market structure in which front-month prices trade at a discount to prices further out.

"Some short sellers closed their position as the oil market was seen oversold. Meanwhile, the plunging oil prices forced OPEC+ to improve solidarity to calm the market," said analysts from Haitong Futures in a note.

Saudi Arabia and Russia, the world's two biggest oil exporters, on Thursday called for all OPEC+ members to join an agreement on output cuts for the good of the global economy, only days after a fractious meeting of the producers' club.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, agreed to a combined 2.2 million barrels per day (bpd) in output cuts for the first quarter of next year.

"Despite OPEC+ members' pledges, we see total production from OPEC+ countries dropping by only 350,000 bpd from December 2023 into January 2024 (38.23m bpd to 37.92m bpd)," said Viktor Katona, lead crude analyst at Kpler.

Some of the OPEC+ countries may not adhere to their commitments due to muddied quota baselines and dependence on hydrocarbon revenues, Katona said.

Brent and WTI crude futures are on track to fall 4.5% and 4.8% for the week, respectively, their biggest losses in five weeks.

Concerns about China's economy and surging U.S. oil output have also fuelled the market's downturn this week.

Chinese customs data showed its crude oil imports in November fell 9% from a year earlier as high inventory levels, weak economic indicators and slowing orders from independent refiners weakened demand.

In India, fuel consumption in November fell after touching a four-month peak the previous month, hit by reduced travel in the world's third-biggest oil consumer as a festive boost fizzled.

In the United States, output remained near record highs of more than 13m bpd, U.S. Energy Information Administration data showed on Wednesday.

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