Oil prices have decreased following the global economic slowdown, despite OPEC+ members jointly announcing a reduction in oil supply to support prices. The price of ICE Brent crude oil in the 4th quarter of 2023, from October 1st to December 6th, averaged $84.6 per barrel, a decrease from the 3rd quarter average of $85.9 per barrel. This decline is attributed to concerns over the weakening global economy, leading to a continuous slowdown in demand. Recently, S&P Global Platts reported the Manufacturing Purchasing Managers' Index (PMI) of the United States, Europe, and China for November 2023 as 49.4 points, 44.2 points, and 49.4 points, respectively. An index below 50 points indicates a contraction in the manufacturing sector of these regions.
Geopolitically, the conflict between Israel and Hamas, which started on October 7th, 2023, did not significantly impact crude oil supply in the Middle East. International mediation efforts, including those by Egypt, the United States, and Qatar, led to a ceasefire and a prisoner exchange from November 24th to 29th. Reuters reported that during the ceasefire, Hamas released 81 hostages, and Israel released 180 prisoners. However, the conflict between Israel and Hamas continues.
In terms of oil supply, non-OPEC producers like the United States, Venezuela, and Brazil are expected to increase crude oil production. The latest report from EIA indicates that U.S. oil production reached a record high of 13.2 million barrels per day for the week ending December 1st, 2023. Venezuela's national oil company, Petróleos de Venezuela, S.A. (PDVSA), aims to increase production to 1 million barrels per day by the end of 2023, following the U.S.'s temporary suspension of oil sanctions against Venezuela for six months starting October 18th, 2023. Currently, Venezuela produces nearly 800,000 barrels per day. Brazil's national oil company, Petrobras, forecasts its average oil production in 2023 to increase by 100,000 barrels per day from the previous year, reaching 2.2 million barrels per day. Petrobras accounts for 65% of Brazil's total oil production.
On November 30th, 2023, OPEC and its allies (OPEC+) failed to reach an agreement on production quotas to support oil prices. However, eight member countries, including Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, voluntarily announced a production cut of 2.2 million barrels per day for the first quarter of 2024. This voluntary reduction did not instil confidence in investors regarding actual production cuts, leading to a continuous decrease in oil prices since the OPEC+ meeting.
Recently, there's a possibility of additional measures by OPEC+ following the visit of Russian President Vladimir Putin to Saudi Arabia and the United Arab Emirates. Discussions are expected regarding further oil production policies to restore confidence in OPEC+'s stability.
PTT Public Company Limited's Foreign Market Analysis Team predicts that ICE Brent crude oil prices in the first quarter of 2024 will likely fluctuate between $75 and $85 per barrel. This is due to the global economic slowdown, which is expected to continue pressuring oil demand. Slow recovery in the manufacturing sectors of the United States, Europe, and China, coupled with additional supplies from non-OPEC+ countries like the United States, Venezuela, and Brazil, will further ease market supply. However, the situation between Israel and Hamas, which currently does not affect Middle Eastern supply, could impact production and export volumes of neighbouring countries like Saudi Arabia and Iran if it escalates. The voluntary production cut by OPEC+ members totalling 2.2 million barrels per day will help keep oil prices above $70 per barrel in the first quarter of 2024. Additionally, the Federal Reserve's Federal Open Market Committee meeting on December 12th-13th, 2023, decided to maintain the federal funds rate at 5.25-5.50%, with a potential reduction in the first quarter of 2024, which could be a key determinant for economic recovery and drive up the oil prices.
Source: CNN, Bloomberg
Source: CNN
Source: CNN
Source: Bloomberg