Oil prices have been continuously moving lower since the end of September. Crude oil prices, in particular, fell more than 20% in less than 2 months.
As a result, U.S. residents are celebrating Thanksgiving day with the cheapest gas prices in three years. National gas prices per gallon fell below $3.30 this week, which is a decrease of more than 25 cents compared to a month ago and over 35 cents lower than the same period in 2022.
OPEC+ Talks Hit a Bump
Most lately, oil prices declined on Wednesday following reports that the OPEC+ meeting scheduled for November 26 would be delayed. According to sources, the postponement is reportedly due to Saudi Arabia expressing dissatisfaction with the production levels of other OPEC+ members.
There is speculation that Saudi Arabia may seek to convince other OPEC+ members to implement additional production cuts. Some anticipate that Saudi Arabia might extend its voluntary cut of 1 million barrels per day into 2024, given the recent decline in oil prices to $80 and the typical seasonal dip in oil demand in the first quarter of each year.
There are also suggestions that OPEC+ could announce a deeper cut at the upcoming meeting, which was originally scheduled for November 25-26, and now moved to November 30.
“I think we need a cut,” Pierre Andurand, the founder of Andurand Capital Management, said in an interview with Bloomberg television.
“The Saudis will probably want the other countries to cut as well, so I think it’s going to be a negotiation.”
At the June meeting, OPEC urged African member nations such as Angola, Congo, and Nigeria to agree to reduced production quotas for 2024 due to a decline in their capacity. If these countries were now requested to implement additional production cuts based on these lower quota levels, there might be a bigger issue.
“We continue to expect that Saudi Arabia and Russia will roll over their additional voluntary cuts into early 2024,” ING strategists Warren Patterson and Ewa Manthey wrote in a note.
“However, what is less clear is whether the broader OPEC+ group will make further cuts.”
Back in September, Saudi Arabia extended its voluntary crude oil production cut of 1 million barrels per day until the end of the year. This reduction brought Saudi crude output to around 9 million barrels per day over the months of October, November, and December.
The initial 1 million barrel per day reduction was implemented in July and has been extended on a monthly basis. This cut is in addition to 1.66 million barrels per day of other voluntary crude output declines implemented by some OPEC members until the end of 2024.
Russia, another key player in the OPEC+ coalition, also committed to voluntarily reduce exports by 500,000 barrels per day in August and 300,000 barrels per day in September.
US, China Demand Worries
Oil prices have been under pressure in recent months as data from China, the world’s largest importer, indicated a more rapid contraction in the economy than previously expected. The housing data has been particularly weak given that despite government intervention, China experienced the most significant drop in house prices in its major cities in over nine years during October.
This decline has implications for the oil market, given China’s status as the world’s largest oil importer and the second-largest oil consumer. The weakened housing market has contributed to a fall in demand, subsequently influencing lower oil prices.
“Clearly, the property sector remains a weak spot for the economy, which requires further support in the foreseeable future,” Hao Zhou, chief economist at Guotai Junan International, said in a note.
Elsewhere, the recent data from the U.S. showed that the number of people filing new claims for unemployment benefits rose to a three-month high. There was also a decline in U.S. retail sales for the first time in seven months during October.
The drop was attributed to reduced purchases of motor vehicles and spending on hobbies, signaling slowing demand for oil and gas products at the beginning of the fourth quarter. Overall, concerns about the economies of China and the U.S. slowing down are winning the balance war versus fears that the Middle East conflict could have far greater regional repercussions.
As a result, oil prices have been mostly weak in recent weeks and months, ultimately hitting a 4-week low last week.
“The mood is negative, the charts are negative,” said Phil Flynn, an analyst at Price Futures Group. “It’s going to take something to change that mood, and until then people will ride it down until they realize it’s overdone.”
In recent weeks, key policymakers have unveiled additional support for the Chinese economy, with a particular focus on assisting struggling local governments. These policy initiatives have garnered attention from the International Monetary Fund (IMF), which made an upward revision of its China growth forecast for the year to 5.4%. Moreover, the IMF has adjusted its 2024 growth forecast for China to 4.6%.
Oil prices hit a fresh multi-month low in recent days on fears about the slowdown in China, the world’s largest oil importer. It is unlikely that oil prices are going to re-rate significantly higher from here as long as investor sentiment about the Chinese economy improves.
This post originally appeared at ValueWalk.com.