OPEC Reduction Deal Disappoints, Oil Falls Over 2%

Meanwhile, Russia reports significant oil and gas revenues drops: File Image/Pixabay

Optimism and hope displayed in earlier sessions for the efficacy of proposed Organization of Petroleum Exporting Countries (OPEC) output cuts turned into scepticism on Thursday, with oil prices falling  after the cartel agreed to substantial cuts for the next year.

OPEC agreeing to cuts approaching 2 million barrels per day (bpd) caused Brent to fall $2.00, or 2.4 percent, to $80.86, and West Texas Intermediate to fall $1.90, also 2.4 percent, to $75.96.

Currently, OPEC's output of 43 million bpd represents a 5 million bpd cut; under the new deal, Saudi Arabia will extend a voluntary cut of 1 million bpd and Russia will cut 500,000 bpd, in addition to contributions from other members.  

The concessions made to these members were said to be the source of scepticism and disappointment among analysts: Rebecca Babin, a senior energy trader at CIBC Private Wealth, complained that "Nigeria and Angola numbers will look like cuts on paper,"  but "will not be barrels off the market."

Details about how the members will enact these cuts remain sketchy.

Further undermining OPEC's efforts was news from the cartel that Brazil would become a member next year; the Latin American producer will raise output to 3.8 million bpd in 2024 but will not take part in the collective cut drive.

Meanwhile in Russia, the former Soviet Union's central bank disclosed that total revenues for the country's largest oil and gas exporters dropped 41 percent between January and September compared to the same period last year.

The bank said the decline was due to lower commodity prices and exports, and it added that fundamental changes in transactions are lengthening payment times: "The process of moving away from the use of the U.S dollar and other toxic currencies in international payments continues."

The bank cited the European Union embargo on Russian oil and fuels as an influencer, reporting that the volume of oil exports via the Transneft pipeline systemdeclined by 8 percent annually in the first nine months of 2023; during that same time frame, the average price of flagship Urals slumped by 26 percent compared to January-September 2022.