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Oil prices slipped Thursday on news OPEC and its allies decided to deepen production cuts through the first quarter of 2024.
Although the move would normally be seen as bullish, Brent crude, the international benchmark, fell 0.3% to $82.83 per barrel.
Rumors of deeper production cuts before the meeting had caused prices to rise, but the reality of the cuts was underwhelming. In addition, OPEC left it to individual countries to communicate their cuts, confusing some investors.
“OPEC+ did a horrific job of communicating what the plan was in their press release,” said Roth MKM analyst Leo Mariani. “Everyone freaked out and sold oil.”
OPEC cuts are meant to prop up oil prices but they sometimes have bearish implications, because they can portend weaker-than-expected oil demand in the future.
In addition, investors may not believe OPEC producers will truly cut production. Announcements about oil cuts have not always led to actual reductions.
“The market is taking a wait and see attitude,” said Rhys Williams, chief strategist at Spouting Rock Asset Management, which is bullish on energy stocks.
Regardless of the market’s initial reaction, Mariani expects the latest production cuts to boost oil prices next year. His 2024 target for Brent is $87 per barrel.
Other analysts have also predicted oil prices will rise as demand grows and OPEC continues to hold supply back. There is still a chance 2024 brings a global recession, but that appears less likely than a few months ago. The Energy Information Administration’s latest 2024 Brent price target is $93.24.
The decline in prices Thursday was even more surprising given another announcement that came out of the OPEC+ meeting. Brazil’s oil minister said the country plans to join OPEC+ starting in January, implying Brazil could start reducing its production next year.
The American depositary receipts of Brazil’s largest oil producer,
Petrobras,
fell 0.7%. Brazil has been growing production this year, offsetting OPEC’s cuts and putting a damper on prices.
The OPEC meeting Thursday was delayed from last week amid disagreements over production. Given the role that a spike in oil prices played in resurgent inflation over the summer—with implications for monetary policy—investors have watched for any moves by OPEC that could cause crude prices to climb higher.
Write to Avi Salzman at avi.salzman@barrons.com and Jack Denton at jack.denton@barrons.com
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