A driver pumps gas at a Sunoco gas station in Washington, DC, US, on Tuesday, Nov. 28, 2023.Â
Al Drago | Bloomberg | Getty Images
U.S. crude oil closed out the year more than 10% lower as bearish sentiment takes over due to concerns about oversupply from record production outside OPEC.
The West Texas Intermediate contract for February shed 12 cents, or 0.17%, to settle at $71.65 a barrel on Friday. The Brent contract for March lost 11 cents, or 0.14%, to settle at $77.04.
U.S. crude and the global benchmark booked the first annual decline since 2020 despite ongoing geopolitical risk in the Middle East due to the devastating war in Gaza. WTI is down 10.73% for the year, and Brent has lost 10.32%.
Oil prices rose nearly 3% on Tuesday on worries about an attack on shipping in the Red Sea disrupting global trade and crude supplies. While fears of escalation in the Middle East have triggered brief spikes in crude prices, traders are primarily focused on the supply and demand balance.
The U.S. is producing crude at a record pace, pumping an estimated 13.3 million barrels per day last week. Output is also at a record in Brazil and Guyana. Historic production outside OPEC has collided with an economic slowdown in major economies, especially China.
OPEC and its allies have committed to cutting production by 2.2 million barrels per day in the first quarter of 2024, but traders seem to have little confidence that the bloc’s policy will bring the market into balance.
Oil production outside OPEC, especially in the U.S., is expected to more than cover demand growth in 2024, according to the International Energy Agency. Global oil demand growth is expected to fall by half to 1.1 million barrels per day next year, while output outside OPEC is expected to grow by 1.2 mbd.
The shift in crude supply from the Middle East to the U.S. and other Atlantic countries is “profoundly impacting the global oil trade,” the IEA said in its December outlook.
The U.S. was responsible for two-thirds of the growth in supply outside OPEC this year. This is challenging efforts in the Middle East to defend their market share and lift oil prices, according to the IEA.
OPEC seems to have little room to maneuver, with production cuts falling on deaf ears. Brazil has agreed to ally itself with the bloc, but it is not clear what that means for markets.
Occidental CEO Vicki Hollub told CNBC in December that U.S. production this year has reached levels that surprised even her. She had a message of caution for the industry.
“It would be prudent of U.S. producers to be careful in terms of putting too much supply in the market,” Hollub said.
