The oil market is currently facing a period of weakness as the Organization of the Petroleum Exporting Countries (OPEC) grapples with disagreements over output quotas. Despite this, it is unlikely that prices will remain low for an extended period.
In the month of November, the cost of crude experienced a decrease of over 5% following a significant drop of 10% in October. This year is on track to be the worst for oil prices since 2020, when the global energy demand was severely impacted by the Covid-19 pandemic.
The need for OPEC to take action this week is evident, however, the announcement of new voluntary production restrictions appears to be underwhelming. The unity within the cartel is faltering as some member nations are inclined to maintain high output levels in order to maximize revenue, even though it benefits all producing nations when global prices are strong.
Concerns regarding global demand are expected to persist into the following year. Deutsche Bank has identified a risk of a recession in the United States, and China continues to struggle with its post-Covid lockdown recovery. Additionally, the Energy Information Administration reported that U.S. output reached a monthly record of 13.2 million barrels per day in September.
Despite these challenges, analysts at Goldman Sachs believe that oil prices will not experience a substantial decline. OPEC will be able to establish a price floor, and non-cartel producers like the United States have limited capacity to increase supplies.
In a note released on Friday, Goldman analysts led by Daan Struyven stated, “We continue to expect that solid demand growth, a slowdown in U.S. supply growth, and low OPEC supply will keep Brent in the $80-100 range in 2024.”
Currently, West Texas Intermediate (the U.S. standard) is experiencing a small decrease of 0.3%, settling at $75.72 per barrel early on Friday. Brent crude (the international standard) has also declined by 0.5%, reaching $80.46 per barrel.