Building on skepticism about the efficacy of the Organization of the Petroleum Exporting Countries' (OPEC) recently announced supply cuts, crude traders on Tuesday caused
another round of losses – albeit minimal – after Russia said OPEC was ready to strengthen cuts in the New Year.
Alexander Novak, deputy prime minister of Russia, told media that the cartel would deepen oil production cuts in the first quarter of 2024 to eliminate "speculation and volatility" if its current strategies were not enough to calm the market.
As a result, Brent settled down 83 cents at $77.20 per barrel, while West Texas Intermediate settled down 72 cents at $72.32.
OPEC on November 30 agreed to cuts of about 2.2 million barrels per day (bpd) in the first quarter of 2024, but FGE noted that the cuts were 1 million bpd below what analysts had expected in order to make a meaningful impact.
There is also considerable doubt that OPEC will fully enact its promised reductions.
Meanwhile, Bloomberg pointed out that Saudi Arabia on Tuesday lowered its official crude selling prices to Asia for January, "a sign of weakness in markets," and added that "an influx of U.S. cargoes threatens to flood markets in Asia, pushing time spreads to hover near February lows."
In other oil news on Tuesday, Majid Jafar, CEO of United Arab Emirates-based Crescent Petroleum, stated during the COP28 talks in Dubai that blaming the oil and gas industry for climate change "is like blaming farmers for obesity: it's our societal consumption that is the issue."
Jafar added that oil and gas would continue to play a major role in the transition to cleaner energy: "We will still need oil and gas throughout the transition and there is no scenario, even the most ambitious scenario, that does not include that."
Also, the U.S. Department of Energy appeared to be taking advantage of lower oil prices by announcing it will receive 4 million barrels to help replenish its emergency reserves in February instead of the summer.
Finally, media reported that NNPC, the national oil company of Nigeria, plans to start using the monthly average of Dated Brent for pricing its cargoes – a move that could make cargoes to Europe less competitive than those of exporters relying on a five-day average price of Brent.
The switch would also make hedging more challenging for traders and make Nigerian crude prices more vulnerable to wider monthly swings.