Oil prices fell nearly 2% on Wednesday as the market awaited a critical decision from OPEC+ on production cuts. While a larger-than-expected decline in U.S. crude inventories lent some support, investor focus remained on the upcoming meeting of the Organization of the Petroleum Exporting Countries and its allies.
Price Movements and Market Context
Brent crude futures fell $1.31, or 1.78%, settling at $72.31 per barrel. U.S. West Texas Intermediate (WTI) crude futures dropped $1.40, or 2%, to settle at $68.54. The declines followed a 2.5% rise in Brent prices on Tuesday, marking its biggest gain in two weeks.
The market remains on edge, with analysts attributing the drop to anticipation of OPEC+ decisions and mixed signals from global oil demand and geopolitical developments.
OPEC+ Meeting and Production Cuts
OPEC+ is set to meet Thursday, with industry sources suggesting the group will likely extend production cuts through the end of the first quarter of 2024. Matt Smith, lead Americas oil analyst at Kpler, noted, “While a delay to unwinding production cuts is expected, the rhetoric out of the meeting is going to have the biggest sway.”
OPEC+ has been gradually phasing out supply cuts, but decisions made at this meeting could significantly influence market dynamics heading into next year.
U.S. Inventory Draw and Refining Activity
U.S. crude stockpiles fell more than expected last week as refiners ramped up operations, according to the Energy Information Administration (EIA). Gasoline and distillate inventories, however, saw larger-than-expected increases.
Kpler’s Matt Smith explained, “A pop in refining activity with runs climbing to a high not seen since the summer has resulted in a see-saw of crude inventories drawing and products building.” While the draw in crude stocks offered bullish momentum, it provided only limited support to prices amid broader uncertainties.
Geopolitical Factors Supporting Prices
Geopolitical tensions in the Middle East and other regions provided a counterbalance to falling prices. A fragile ceasefire between Israel and Hezbollah remains in place, but any breakdown could escalate hostilities, with Israel warning of deeper incursions into Lebanon.
In Syria, a rebel offensive threatens to involve forces from oil-producing nations, adding another layer of uncertainty to the global oil market.
Looking Ahead
As the OPEC+ meeting approaches, investor attention is focused on the group’s decisions and their potential impact on oil supply. With geopolitical risks and fluctuating inventory data in play, the oil market remains volatile, and prices are expected to react strongly to the outcomes of Thursday’s meeting.