Oil Prices Drop as Increased US Supply Offsets OPEC+ Cuts

Last week, OPEC+ members agreed on a new voluntary output cut extension that would last until sometime in the first quarter of 2024. However, the move failed to propel crude prices higher, as recent data shows record US exports of 6 million barrels per day (bpd).

Crude Benchmarks Drop to 6-Month Low

Oil prices edged lower on Wednesday as markets reacted to the fresh supply released by the US, which reduced the effectiveness of a recent OPEC+ cut extension.

According to the latest ship-tracking data, the US is exporting almost 6 million bpd, and the surplus is offsetting the recent soft supply cut that OPEC+ has vowed to uphold. As a result, the market is currently dealing with an imbalance favoring supply over demand levels.

Consequently, Brent crude futures slipped 0.8% on Wednesday to $76.57 a barrel, while the West Texas Intermediate (WTI) lost fell 0.83% to $71.72 a barrel. 

Last week, OPEC+ reached an agreement on voluntary output cuts of around 2.2 million bpd for Q1 2024, with Saudi Arabia and Russian officials adding this week that the cuts could be extended or even deepened beyond March next year. The world’s two biggest oil exports initially planned to keep the cuts running until the end of 2023.

Despite the agreement, both crude benchmarks extended their previous declines and dropped to a 6-month low in the earlier session. The prices are on track for a fourth day of losses. 

“The decision to further reduce output from January failed to stimulate the market and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears.”

– said PVM analyst Tamas Varga.

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Dollar Index Nearing 104 as Yields Decline at Slow Pace

While oil prices extend their declines, the US dollar is heading for its third consecutive day of gains. Notably, the US Dollar Index (DXY) is inching closer to 104 and could breach that mark in the coming days.

Even though the US Treasury yields have been on a downtrend, they are declining at a slower pace than their peers, which could boost USD against a basket of currencies. For that reason, the euro, Chinese Yuan, and Central European currencies are seeing the biggest losses. 

However, many FX strategists expect the greenback to lose its momentum against other G10 currencies in 2024 due to a soft outlook. The market believes the Federal Reserve will begin cutting interest rates in 2024, which typically hurts the dollar’s value.

Considering current macroeconomic conditions, what are your expectations for oil prices in 2024? Let us know in the comments below.