- OPEC+ might extend output cuts until the end of Q1 next year.
- The US economy might add 195,000 new jobs in November.
- Crude stocks dropped by 5.073 million barrels last week.
Oil prices dropped about 2% on Wednesday, extending the move into Thursday as market participants eagerly awaited the OPEC+ meeting. At the same time, investors were awaiting crucial US data on employment that will shape the outlook for Fed rate cuts.
Oil futures (Source: ICE, Nymex)
The OPEC+ meeting is significant because the group will decide on its production policy. Experts believe producer countries will agree to extend output cuts until the end of Q1 next year. If this is the case, oil might climb. Meanwhile, a sooner-than-expected end to output cuts could lead to further oil declines. Notably, oil rallied almost 2.5% on Tuesday in anticipation of the OPEC+ meeting.
Furthermore, the market fluctuation came ahead of the US nonfarm payrolls report due on Friday. This report will shape the outlook for future Fed policy moves, affecting oil prices. According to estimates, the US economy might add 195,000 new jobs in November, well above the previous month’s reading of 12,000. Meanwhile, economists expect an increase in the unemployment rate from 4.1% to 4.2%.
An upbeat report will reflect a robust labor market, leading to a more cautious outlook for the Fed. Already, Fed Chair Powell noted on Wednesday that the US economy was more resilient than it was when the central bank started lowering borrowing costs. Therefore, he supported a more cautious approach to policy. High rates for longer are bearish for oil. High interest rates curb economic demand, reducing fuel consumption.
On the other hand, if employment is poorer than expected, it will solidify bets for a rate cut in December, boosting oil prices.
Elsewhere, data on Wednesday revealed that crude inventories fell more than expected last week. Stocks dropped by 5.073 million barrels, well above estimates for a 1.600 million barrel decline. The drop was an indication that demand was high over the last week. At the same time, experts noted that refinery runs had increased.
Meanwhile, traders also paid attention to the Middle East war, where the ceasefire deal between Israel and Hezbollah seemed shaky. Israel said on Tuesday that it would resume the war in Lebanon, raising fears of further tensions. Elsewhere, in South Korea, lawmakers are ready to impeach the president due to his martial law declaration.
