Crude Oil Price: Global oil markets are witnessing a sustained rally, with prices climbing for a fourth consecutive day. This upward trend is primarily fueled by a strategic decision from the OPEC+ alliance to hit the brakes on a planned production increase early next year, signaling a firm intent to prop up prices in a volatile market.
The Core Decision: A Production Pause
In a closely watched move, the Organization of the Petroleum Exporting Countries and its allies, led by Russia, announced on Sunday that they will maintain their current oil output levels for the first quarter of 2025. This means a planned production increase of approximately 137,000 barrels per day, scheduled for January, has been shelved. This decision comes against a backdrop of growing concerns over a potential supply glut, which had previously driven down Brent crude, the international benchmark, by nearly 10% over the last three months.
Price Action and Market Sentiment
The market’s response was immediate and decisive. Brent crude futures surged past $85 per barrel, marking their longest winning streak since the end of September. Meanwhile, West Texas Intermediate (WTI), the U.S. benchmark, hovered around the $81 mark. This rally was further supported by heightened geopolitical risks, particularly new U.S. sanctions on Russia that have cast doubt on the future supply from one of the world’s top exporters.
Why the Sudden Caution from OPEC+?
Analysts suggest this cautious approach from OPEC+ is a direct response to fears of a seasonal demand slowdown in the first quarter. Furthermore, the alliance is grappling with internal challenges. Despite having a collective unused production quota of about 1.2 million barrels per day, the group’s actual output increases have been significantly lower. This is because some members are still compensating for past overproduction, while others are struggling with capacity constraints, limiting the real-world impact of their planned supply hikes.
As Brian Martin and Daniel Hynes, analysts at ANZ Group Holdings Ltd., noted in a client memo, “The decision to pause output increases from January reflects seasonal demand concerns. We suspect they also recognize that the market may struggle to absorb additional barrels, especially if any disruption to Russian supply proves temporary.”
Geopolitical Tensions Add to the Volatility
Adding a layer of risk premium to the prices are rising geopolitical tensions. Traders are closely monitoring a Ukrainian drone attack on the Black Sea port of Tuapse, which damaged oil loading facilities and set a tanker ablaze. The region is home to a major refinery operated by Rosneft PJSC, which, along with Lukoil PJSC, was recently hit with fresh U.S. sanctions.
In a separate development that has put markets on edge, former U.S. President Donald Trump stated that Nigeria, Africa’s largest oil producer, should expect potential U.S. military action over its failure to curb inter-religious violence. This statement, coming just days after denying reports of planned U.S. action in Venezuela, introduces another element of uncertainty into the global energy landscape, keeping traders wary of sudden supply disruptions.
