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Oil Prices Stable Amid OPEC+ Production Cuts and US Inventory Decline

Oil maintained its stability in fluctuating trade on Thursday, heading for a third consecutive weekly gain. Market participants weighed the impact of additional OPEC+ production cuts and a decrease in US oil inventories against concerns regarding the global economic outlook.

3D printed pumpjack with OPEC+ logo
3D printed pumpjack with OPEC+ logo

Brent Crude and WTI Experience Minor Dips; Market Surprised by OPEC+ Cuts

Brent crude slipped 33 cents, or 0.4%, to $84.68 a barrel, while West Texas Intermediate US crude dipped by the same percentage to $80.25. Both experienced a more than 6% jump this week after OPEC+, comprised of the Organization of the Petroleum Exporting Countries and allies like Russia, unexpectedly pledged to cut production.

Hedge Funds and US Crude Inventory Drop Support Oil Prices

According to Dennis Kissler of BOK Financial, hedge funds contributed to the bullish trend by purchasing crude throughout the week, moving from a cautious stance to a "risk on" approach. The oil market also found support from a larger-than-anticipated decrease in US crude inventories, with gasoline and distillate inventories similarly declining, suggesting increased demand.

Economic Growth Concerns Limit Oil Gains; Traders Hedge Against Price Drops

Despite the positive factors, gains were limited due to US labor market data indicating slowing economic growth and a weaker-than-expected expansion in the US services sector. Robert Yawger of Mizuho Securities noted that the risk of recession-driven demand destruction outweighed the effect of OPEC+ cuts. Traders appeared more concerned about potential price drops, with put option buyers, who hedge against falling prices, being more active than call option buyers betting on rising prices.

Stronger Dollar and Tightening Supply Impact Oil Market

The US dollar gained against most other currencies on Thursday, making crude more expensive for those holding other currencies and increasing investor risk aversion. Stephen Brennock of oil broker PVM acknowledged that the oil market's bullish momentum may have temporarily stalled but maintained that the tightening supply backdrop still offered upside potential.