CIO sees prices trending higher next year, with market balances tightening again with OPEC+ implementing their production cuts. (UBS)

Based on talks we had with other market participants, several factors have been mentioned as weighing on crude prices so far in December. One explanation was the "voluntary" OPEC+ production cuts for 1Q. Here we see market participants fearing those cuts are only voluntary with poor compliance. The second factor is driven by concerns OPEC+ will unwind production cuts next year and flood the market to fight for market share. Lastly, high interest rates and recession fears together with strong non-OPEC+ supply growth were mentioned.


Let's look at these factors. The Saudi energy minister Prince Abdulaziz explained in a TV interview that not all OPEC+ members were joining the new cuts. As some were still producing below their quota those cuts needed to be voluntary, and he looks for a high compliance rate. We still believe that OPEC+ crude production will fall in 1Q24 vs 4Q23, but market participants will look closely at OPEC+ exports as an indicator. On the second factor, while the new cuts are for the 1Q only, the Saudi and Russian energy ministers said the return of those barrels would be gradual if conditions allow it, or cuts could be extended.


With market liquidity drying up as we approach the end of the year, prices are likely to stay volatile and further lows cannot be excluded. We still see prices trending higher next year, with market balances tightening in again with OPEC+ implementing their production cuts.


Main contributors – Giovanni Staunovo, Wayne Gordon, Dominic Schnider


Read the original report : Crude oil: At a six-month low, 18 December 2023.