U.S. crude prices declined Wednesday after the Organization of Petroleum Exporting Countries delayed a pivotal meeting on production cuts that was scheduled for the weekend.
The West Texas Intermediate contract for January fell about 5% to $73.85 a barrel in the morning, but clawed back most of those losses.
U.S. crude ultimately settled at $77.10 a barrel, down 67 cents or .86%. The Brent contract for January fell 49 cents, or .59%, to settle at $81.96 a barrel.
OPEC said in a statement that the meeting of energy ministers is delayed until next Thursday. The organization did not provide a reason, but Saudi Arabia is struggling to convince Angola and Nigeria to accept lower output targets, delegates told Bloomberg.
There was growing anticipation among traders that OPEC and its allies, called OPEC+, might implement additional production cuts, which pushed prices higher late last week and early this week.
But compliance is a major challenge for OPEC+ because many countries have an incentive to not stick with their production quotas, said Tamas Varga, an analyst with PVM Oil Associates.
“Compliance will be weak going forward,” Varga said. He pointed to Russia in particular, which needs to finance its war in Ukraine
Oil prices have fallen precipitously from September highs as record non-OPEC production collides with demand concerns in China, where exports have fallen six months in a row.
“It’s undermining the Saudi efforts to get the price really back to $100 a barrel plus,” John Kilduff, an oil analyst at Again Capital, told CNBC’s “Power Lunch” Wednesday.
U.S. data underlined that picture on Wednesday. Crude production stands at an estimated 13.2 million barrels per day, a record level and 1.1 million bpd higher than the same period last year, according to data released by the Energy Information Agency.
Domestic crude inventories, excluding the strategic reserve, increased by 8.7 million barrels for the week ending Nov. 17. Meanwhile, finished gasoline supplied declined by 469,000 barrels from the prior weak, implying softening demand in the U.S.
Kilduff said U.S. crude could test $70 a barrel and possibly drop to the low $60-a-barrel range, particularly if there’s a mild winter in the northern hemisphere.
While the supply and demand picture may irk OPEC, it will help U.S. consumers’ pocketbooks. Gas prices in the U.S. are falling and forecast to hit $3.25 per gallon on average Thursday, according to GasBuddy. That would be the cheapest price for fuel on Thanksgiving day since 2020.
OPEC+, for its part, has already taken 5.16 million barrels per day off the market since 2022. This includes 3.66 million bpd from the group and 1.5 million bpd in voluntary cuts from Saudi Arabia and Russia.
Despite those deep cuts, Brent has fallen below $80 a barrel in recent weeks. Goldman Sachs believes OPEC will use its pricing power to keep Brent in a range of $80 to $100 a barrel.
Most analysts view OPEC+ extending the current cuts into 2024 as the most likely scenario, though they would not rule out the possibility of deeper cuts given current market conditions.
Israel and Hamas also agreed to a four-day ceasefire Wednesday to facilitate the release dozens of hostages held in Gaza. Oil spiked in October on worries that the war could spread throughout the Middle East, though traders increasingly view a regional conflict as unlikely.
OPEC has blamed speculators for the recent drop in crude prices, arguing that market fundamentals are strong. But investors simply aren’t buying OPEC’s narrative right now, Varga said.
“Investors do not really believe that the fourth quarter of the year and the first one or two quarters of next year will be as tight as OPEC as been implying,” Varga said.