Oil prices fell more than 2% on Thursday after the Financial Times reported that Saudi Arabia is committed to phasing out voluntary production cuts from December 1, even if it leads to a “prolonged period” of lower crude oil prices.
The report, which cites people familiar with Saudi Arabia’s thinking, says the country is willing to give up its unofficial $100 per barrel price target for crude oil to regain market share.
On Thursday, the West Texas Intermediate (CL=F) fell more than 2% to below $68 per barrel. Brent (BZ=F), the international benchmark price, also fell by as much as 3% to hover around $71 per barrel.
“I’m not surprised by the reaction in the market because the OPEC ‘put’ has been protecting the downside since they kept barrels off the market,” Rebecca Babin, senior energy trader at CIBC Private Wealth, told Yahoo Finance on Thursday.
While the Organization of the Petroleum Exporting Countries, which consists of 12 of the world’s largest oil-exporting countries, including Saudi Arabia, has cut production since 2022, the US and other oil-producing countries have increased production. Last year the US produced record amounts of oil and gas.
Babin, however, questions whether OPEC is ready to make a complete pivot to regain market share as some member states have produced above their quotas this year despite the group’s promises.
“I think this decision is more about recalibrating who bears the burden of OPEC’s production cuts,” Babin said.
“My feeling is that OPEC wants the countries that have overproduced to compensate for the overproduction, while those that have complied are given the opportunity to bring back barrels,” she added.
Earlier this month, OPEC+, which includes OPEC members as well as non-members such as Russia, Kazakhstan and Sudan, postponed the unwinding of some of its voluntary cuts planned for October as oil prices fell.
Wall Street analysts had already lowered their price target for Brent based on expectations of growing supply and weak demand.
In September, Morgan Stanley cut its Brent forecast (BZ=F) for the second time in a month, citing recent price declines that indicate the risk of “significant demand weakness.”
The analysts predict Brent prices will average $75 per barrel in the fourth quarter of this year, $5 lower than the previously downwardly revised forecast of $80 issued in late August.
JPMorgan recently cut its fourth-quarter forecast to $80 per barrel from $85, citing “major oil underperformance” in August.
Earlier in September, oil prices fell to their lowest level since 2021, but recovered from that low last week.
Year to date, WTI is down 3%, while Brent is down about 4%.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X @ines_ferre.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
