Oil prices experienced a downturn on Friday, marking a lackluster week as OPEC+ decided to extend its current supply cuts until well into 2025. This decision has intensified worries about diminishing demand. The week’s tepid performance was compounded by mixed U.S. inventory data, which raised additional concerns about demand as the winter season approaches. Nevertheless, traders maintained a degree of risk premium in the market due to ongoing tensions between Israel and Lebanon, even in the wake of a recent ceasefire.
Brent crude futures for February delivery fell by 0.4 percent to $71.80 a barrel, while West Texas Intermediate (WTI) crude futures also dropped by 0.4 percent, settling at $67.67 a barrel by 20:57 ET (01:57 GMT). Both contracts were on track to finish the week with minimal changes.
OPEC+ extends supply cuts to April 2025
During a meeting on Thursday, the Organization of the Petroleum Exporting Countries and its allies, including Russia (collectively known as OPEC+), agreed to prolong their ongoing supply cuts until April 2025. The cartel plans to gradually increase output starting in April while maintaining supply cuts until the end of 2026.
Originally, OPEC+ had intended to start ramping up production in October 2024, but this plan has been delayed multiple times due to falling oil prices driven by weakening demand, particularly from China, the largest importer. The cartel has also consistently revised its demand growth projections for 2024 and 2025 downward.
While this latest decision suggests a tighter crude market outlook for 2025, it has also led to trader anxiety regarding declining demand. Although OPEC+ accounts for approximately half of global oil supplies, it faces mounting competition from non-member production, particularly from the United States.
U.S. oil production has remained near record levels, hovering around 13 million barrels per day, and is anticipated to increase further with the incoming administration of President Donald Trump. Trump has indicated plans for trade tariffs on China, which could negatively impact the economy and further depress crude demand. Additionally, analysts at ANZ pointed out that the rise in electric vehicle adoption in China is also putting pressure on fuel demand.
Oil markets prepare for economic data surge
Oil traders are exercising caution and refraining from making significant investments ahead of an upcoming wave of economic data releases. On Friday, U.S. nonfarm payrolls data is expected, which will likely influence the outlook for interest rates.
Next week will see the release of Chinese inflation and trade figures for November, along with the Central Economic Work Conference, which is anticipated to provide further insights into the world’s largest oil importer. U.S. inflation data is also forthcoming next week.
On Thursday, oil prices saw a minor uptick, supported by a larger-than-expected draw in U.S. inventories and escalating geopolitical tensions in the Middle East. However, overall gains were limited by rising U.S. product inventories, as traders remained cautious ahead of the OPEC+ meeting, which was expected to offer more clarity on supply dynamics.
Brent crude futures for February rose by 0.1 percent to $72.37 a barrel, while WTI crude futures increased by 0.2 percent to $68.32 a barrel by 20:57 ET (01:57 GMT). The oil market has witnessed some upward movement this week, although the ceasefire between Israel and Lebanon remains fragile.
Read more: Oil prices edge up amid U.S. inventory draw, OPEC+ meeting in view
U.S. oil inventories decline, but product stocks rise
Recent data indicated that U.S. oil inventories fell by a larger-than-expected 5.07 million barrels in the last week of November. However, stockpiles of gasoline and distillates increased, suggesting that overall fuel demand is continuing to cool in the world’s largest consumer of fuel. While demand for heating fuels is expected to increase during the winter months, a decrease in travel activity could lead to a reduction in overall oil demand.
Oil prices dipped slightly on Wednesday following a significant rise in the previous session, which was fueled by Israel’s warning of potential military action against Lebanon if the ceasefire were to collapse. This upward momentum encountered obstacles due to industry reports revealing an unexpected rise in U.S. oil inventories. Market sentiment remained uneasy ahead of the OPEC+ meeting, where it is anticipated that the cartel will delay any plans to boost production.
API reports inventory increase
The American Petroleum Institute (API) reported that U.S. oil inventories rose by 1.2 million barrels for the week ending November 29, contrary to expectations for a decrease of 2.1 million barrels. This unexpected increase has raised alarms about weakening demand in the world’s largest fuel consumer, particularly with winter approaching. API data often precedes similar government inventory reports, which were anticipated later on Wednesday and could signify a loosening of supply constraints.
Government data from the prior Wednesday revealed a decline in U.S. oil inventories by 1.8 million barrels for the week ending November 22. In contrast, gasoline inventories surged by 3.3 million barrels, marking the second consecutive week of substantial increases, alongside a rise in distillate stocks. These inventory builds have intensified concerns about potential demand slowdowns in the U.S., especially as winter generally sees reduced travel.
