Piracy thrives in the Red Sea, and the International Energy Agency predicts an oil deficit on the world market soon, but prices continue to fall.

In fact, there is chaos in geopolitics, not only in the Middle East and Eurasia but also in Latin America, pushing the gold price to new all-time highs, yet oil does not react much.

Why is this?

Despite the war in Israel and Yemeni Houthi attacks on merchant ships in the Bab-el-Mandeb strait, there are no disruptions in oil supplies.

The recent OPEC+ meeting did not change things much, either. The alliance supported prices, but production cuts were minor than expected:

  • Saudi Arabia extended the current production cut, and Russia agreed to extend the oil export cut by 300,000 barrels per day.
  • They also agreed to reduce the export of oil products by 200,000 barrels per day in the first quarter of 2024.
  • Some African countries were allowed to increase their production, but other participants' quotas were reduced, resulting in a net deduction of another 700,000 barrels.

However, the market was not impressed by these figures. Brent futures fell 2.5% below $80 per barrel on the day of the meeting for the first time since January.

It is also true that if there had been no consensus, prices would have plummeted even further as the asset entered the market movers of the day, but in a bad way...

In general, many are beginning to think that OPEC+ is losing control and cannot compensate for increased production outside the alliance.

What else is working against oil?

Unless Iran goes to war with Israel or decides, on its own or with Hezbollah's help, to blockade the Strait of Hormuz, an oil deficit is not expected in the market. Supply outside the OPEC+ cartel is growing, and there is a risk that demand will decline next year.

Slowing business activity in the eurozone reinforces expectations of recession, and problems are mounting in the Chinese economy, with growth slowing.

As for the US, despite the country's plans to use low oil prices to replenish reserves, the outlook for consumption is also not optimistic due to the slowdown in consumer spending and business activity.

Finally, yet importantly, the ESG agenda requires countries to discipline methods to reduce hydrocarbon production, further impacting the oil market.