The energy sector continues to witness a tumultuous period as crude oil futures closed lower for the third consecutive session. This decline comes as the post-OPEC+ market demonstrates skepticism towards the impact of voluntary production cuts.
“Oil has morphed into a market that requires substantial proof,” stated RBC analysts Michael Tran and Helima Croft. They indicated that the market is currently prone to moving lower in the absence of clear catalysts and amid significant ambiguity.
In light of these developments, the RBC analysts highlighted the market’s need for definitive data points concerning the voluntary output cuts. They emphasized that until such clarity emerges, prices are likely to remain volatile and lack direction.
Expressing doubts regarding the efficacy of the alliance’s efforts, OANDA analyst Craig Erlam remarked, “With markets seemingly anticipating more of an economic slowdown next year, the announcement simply doesn’t go far enough.” He questioned the extent to which the cuts would be delivered and whether the alliance is reluctant to take further steps to balance the markets.
The day saw the front-month Nymex crude (CL1:COM) for January delivery closing at a dismal -1.4%, reaching $73.04/bbl, while the front-month February Brent crude (CO1:COM) finished at -1.1%, amounting to $78.03/bbl, marking the lowest settlement for both benchmarks since November 16. This decline adds to last week’s 2% decrease.
The notion that Saudi Arabia’s production cuts could extend past March, as stated by Saudi Energy Minister Prince Abdulaziz bin Salman, briefly gave rise to crude prices. However, this optimism quickly dissipated, underscoring the market’s prevailing pessimism.
In addition, the impact of geopolitical events on the oil market was evident as ballistic missiles fired by Yemen’s Houthi rebels hit three commercial ships in the Red Sea. Despite this, fears of a broader conflict waned, leaving oil prices largely unaffected.