Brent nears $93, US WTI ticks higher after OPEC+ pushes back output hike, extends cuts through 2026
- OPEC+ members are holding back 5.86 million bpd of output, or about 5.7 per cent of global demand, in a series of steps agreed since 2022 to support the market
International crude oil prices traded higher on Thursday, December 5, after the Organisation of Petroleum Exporting Countries and its allies (OPEC+), in its virtual meeting, decided to delay its planned output increase by three months to April 2025 and extend the full unwind of production cuts by a year until the end of 2026.
Brent crude futures last traded 38 cents, or 0.53 per barrel higher, to $72.69 a barrel, while US West Texas Intermediate (WTI) rose 36 cents, or 0.53 per cent, to $68.90 per barrel. Back home, crude oil futures last traded 0.24 per cent higher at ₹5,819 per barrel on the multi-commodity exchange (MCX).
Brent nears $93/bbl: What's driving crude oil prices?
-OPEC+ had planned to start unwinding cuts in October 2024, but slowing global demand and booming production outside the group forced it to postpone the plans several times. Analysts noted the challenging supply landscape that OPEC+ faces while trying to prop up the market.
-Despite the group's supply cuts, global oil benchmark Brent crude futures have mostly stayed in a $70 to $80 per barrel range this year. On Thursday, the benchmark traded near $72 a barrel, having hit a 2024 low below $69 in September.
-According to Reuters calculations, the gradual unwinding of 2.2 million barrels per day (bpd) of cuts will start next April with monthly increases of 138,000 bpd and last 18 months until September 2026. OPEC+ pumps around half the world's oil.
-According to Ole Hansen, head of commodity strategy at Saxo Bank, this was the only option OPEC+ had available unless the oil cartel was prepared to suffer the consequences of lower prices. This means there is no upside to the oil price in the next couple of years.
-Elsewhere, a larger-than-expected draw in US crude stockpiles last week also supported prices. And in the Middle East, Israel said on Tuesday it would return to war with Hezbollah if their truce collapses, and its attacks would go deeper into Lebanon and target the state itself.
-Meanwhile, Donald Trump's Middle East envoy has travelled to Qatar and Israel to kick-start the US president-elect's diplomatic push to help reach a Gaza ceasefire and hostage release deal before he takes office on January 20.
-Eight OPEC countries will extend their "voluntary adjustments" of 2.2 million barrels per day until the end of March, the Vienna-based group said in a statement following a virtual meeting. After that, those cuts "will be gradually phased out" monthly until the end of September 2026, "subject to market conditions".
-Without a new agreement, the eight countries were set to begin increasing production in January to gradually return it to 2023 levels. Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates have already twice pushed back the production increases that were set to begin in October and then in December.
-A cooling US dollar was lending some support on Thursday. Expectations for the US Federal Reserve to cut interest rates this month will further ease the dollar's strength and support the oil market. A stronger greenback makes dollar-denominated oil more expensive for investors holding other currencies, hurting demand.
-The International Energy Agency (IEA) said last month that even if the OPEC cuts remain in place, the global supply will exceed demand by more than one million barrels per day next year. This means global markets face a surplus of one million barrels a day in 2025 even if OPEC does not add a single barrel.
OPEC+ December policy verdict
OPEC+ members are holding back 5.86 million bpd of output, or about 5.7 per cent of global demand, in a series of steps agreed since 2022 to support the market. The steps include cuts of two million bpd by the whole group, 1.65 million bpd of the first stage of voluntary cuts by eight members, and another 2.2 million of the second stage of voluntary cuts by the same eight members.
On Thursday, OPEC+ agreed to extend the two million bpd and the 1.65 million bpd of cuts until the end of 2026 from the end of 2025. The gradual unwinding of 2.2 million of cuts will start from April 2025 with monthly increases of 138,000 bpd, and lasting 18 months until September 2026.
Previously, OPEC+ had planned to unwind the 2.2 million cut over 12 months through monthly output increases of 180,000 bpd. OPEC+ also agreed to allow the United Arab Emirates to gradually raise output by 300,000 bpd from April until the end of September 2026 instead of the earlier plan to start it in January 2025.
This is a stark reversal from the last OPEC meeting in June when the alliance had been confident it could start restoring a significant chunk of the output it had previously idled in a bid to shore up prices.
But conditions in the oil market soon shifted. Demand contracted for six straight months in China's top consumer, while US production hit new highs, and a wave of fresh supply came from Brazil, Canada, and Guyana.
Where are prices headed?
Oil prices — the economic lifeblood of OPEC members — have plunged 18 per cent since early July to trade near $72 a barrel in London. Citigroup Inc. and JPMorgan Chase & Co. have predicted that crude will keep sliding into the $60s next year.
According to Bloomberg, if OPEC were to abandon its cuts, the market could tip into a structurally bearish phase defined by years of low prices. That happened in the late 1980s and again after the US shale oil revolution of the mid-2010s.
Crude oil inventories fell by 5.1 million barrels last week, significantly more than the expected 1.6 million barrel drop, providing some support to prices. After the inventory report, WTI briefly crossed $70 per barrel, though it could not hold these gains. Analysts said traders reduced their long positions before the OPEC+ meeting.
“We anticipate crude oil prices will remain volatile this week, influenced by fluctuations in the dollar index, the outcomes of the OPEC+ meetings, and ongoing geopolitical tensions. Crude oil is seeing support at $67.50-66.80, with resistance at $68.85-69.40. In INR terms, support is at ₹5,750-5,670, with resistance at ₹5,890-5,960,” said Rahul Kalantri, VP of Commodities, Mehta Equities Ltd.
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