Oil Slump Deepens Despite OPEC+ Cuts

Oil prices hit a five-month low as OPEC+ production cuts fail to offset global supply rise and demand concerns.

Why are oil prices falling despite Opec+ production cuts?

Global crude oil prices have plunged to a five-month low, as investor skepticism grows regarding the effectiveness of recent production cuts by OPEC+. Brent, the international crude benchmark, fell to $74.30 a barrel, its lowest since late June, while the US benchmark West Texas Intermediate dropped to $69.38 a barrel. This downward trend reflects market concerns that the cuts by OPEC+, led by Saudi Arabia and Russia, may not sufficiently counterbalance the rising supply from non-cartel countries and a decrease in global demand.

OPEC+'s Voluntary Cuts Questioned

The recent decision by OPEC+ to extend voluntary production cuts, in addition to new reductions from other members, aimed to support the market. However, the non-mandatory nature of these cuts has left traders unconvinced of their effectiveness. Martijn Rats from Morgan Stanley highlighted the growing market sentiment that OPEC+ might struggle to maintain unity and effectively implement the cuts.

Broader Economic Implications And Geopolitical Factors

Lower oil prices, while potentially beneficial for the global economy, especially amidst a slowdown in China and high interest rates in industrial nations, pose challenges for large oil producers. Notably, Russian President Vladimir Putin's recent visits to OPEC members UAE and Saudi Arabia, crucial for Russian trade post-Ukraine invasion, underscore the geopolitical intricacies intertwined with oil market dynamics.

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Uncertainty Over OPEC's Cohesion and Future Moves

Investors remain unconvinced about OPEC members' commitment to limiting supply, with concerns over losing market share. Countries like Angola within the group have resisted further production cuts. Additionally, unexpected increases in US gasoline inventories have added to worries about weakening demand. Bjarne Schieldrop of SEB anticipates more production cuts from OPEC+ if prices continue to struggle, particularly in light of strong US output growth this year.

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