Brent falls below $80/bbl mark as surplus stocks waive off supply concerns

The front-month ICE Brent contract has plummeted $2.91/bbl on the day, to trade at $77.90/bbl at 09.00 GMT.

PHOTO: Black barrels of oil placed on US Dollar bills. Getty Images

Upward pressure:

Brent futures gained some support amid growing expectations that OPEC+ producers will roll out more voluntary supply cuts in the first quarter of 2024. 

“The recent trend may make it difficult for Saudi Arabia and Russia to allow their unilateral cuts to expire at the end of the year, which is something markets may be gradually pricing in,” OANDA’s senior market analyst Craig Erlam said.

Concerns that OPEC’s de facto leader Saudi Arabia and its top ally Russia will continue to reinforce supply reductions to put a floor under oil prices have resurfaced, analysts said. Brent price will find some support as “[OPEC] producers will do whatever it takes to support the [oil] price,” Erlam added.

Oil investors will now wait for more cues from the OPEC’s joint ministerial meeting on 26 November, when the group's production policies will be discussed.

Downward pressure:

Signs of surplus supplies in the physical market weighed on oil prices this week. Commercial crude oil inventories in the US surged by 3.60 million bbls in the week ended 10 November, indicating a lacklustre oil demand in the world’s largest oil consuming nation.

Moreover, the recent decline in Brent futures can be attributed to supply growth by smaller producers in the oil market, analysts said. “Despite the announced supply curbs by major players [Saudi Arabia and Russia] through the end of the year, the impact has been negated by increased production from smaller producers,” SPI Asset Management’s managing partner Stephen Innes said.

The oil balance till the year-end is not “as tight as initially expected,” said two oil market analysts at ING Bank. Despite OPEC’s recent supply projections for 2024, market analysts expect physical supply to “return to surplus” in the first quarter of 2024.

“The tight supply conditions widely expected in Q4 [fourth quarter of 2023] have failed to materialise, as evidenced by the late large US inventory build,” Innes added.

By Aparupa Mazumder

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