2024.12.05

Oil Prices Steady as OPEC+ Supply Decision Looms

Oil prices remained mostly stable on Thursday as markets awaited the outcome of the OPEC+ meeting, where an extension of production cuts through early 2024 is anticipated. Brent crude rose slightly to $72.37 per barrel, and U.S. crude edged up to $68.61 per barrel, following a nearly 2% drop the previous day due to heavy futures selling.

OPEC+ is expected to extend supply cuts by at least three months to stabilize prices, though concerns linger about balancing price support with market share. Analysts predict market volatility, with potential upward trends influenced by U.S. economic recovery and geopolitical tensions in the Middle East.

Meanwhile, U.S. crude inventories fell more than expected, providing some price support, despite increases in gasoline and distillate stockpiles. Geopolitical risks persist as the conflict between Israel and Hezbollah remains a long-term concern, compounded by diplomatic efforts from the incoming U.S. administration to address tensions in Gaza.

[SLOW] Oil Market

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OPEC+ Likely to Extend Oil Production Cuts Amid Market Challenges

OPEC+ is expected to extend its oil production cuts by at least three months starting January, with a six-month extension also being considered, according to sources ahead of Thursday’s talks. However, deeper cuts are unlikely.

The alliance, which controls about half of the world’s oil supply, has faced hurdles from slowing global demand and increased output outside the group. Current production cuts total 5.86 million barrels per day, helping keep Brent crude prices between $70 and $80 per barrel this year.

Upcoming challenges include managing a planned UAE production increase and a small January output hike delayed since October due to falling prices.

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Oilfield Services Set for Increased Mergers Under Trump

The U.S. oilfield service sector is expected to see more consolidation in 2025, fueled by deregulation under President-elect Donald Trump. Mergers among major producers, like Exxon Mobil’s $60 billion deal with Pioneer, have reduced the customer base for smaller firms, prompting buyouts. Deloitte reports $19.7 billion in deals through 2024, the highest since 2018, despite FTC scrutiny.

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VLCC Rates Hit Three-Month Low as BP and PTT Secure Low-Cost Fixtures

Spot rates for Very Large Crude Carriers (VLCCs) have dropped to their lowest level since September, with the Baltic Exchange average falling to $28,300 per day—a 25% decrease from the November peak of $37,600. The decline comes amid weak winter demand in the large crude tanker market.

PTT and BP capitalized on the falling rates, securing cost-effective charters. PTT booked the scrubber-fitted Maran Thaleia for a Middle East-to-Thailand route at WorldScale (WS) 42.75, equating to $20,300 daily on a round-voyage basis. Similarly, BP fixed the scrubber-fitted Eagle Veracruz on the Middle East-to-China route at WS 44, yielding $29,000 daily.

Scrubber-fitted vessels, which use cheaper heavy fuel oil, are particularly benefiting from the rate dip, intensifying competition and further pressuring VLCC charter costs.

[SLOW] Daily VLCC Market

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U.S. Increases Sanctions on Iran's 'Shadow Fleet'

The Biden administration has expanded sanctions on Iran, targeting 35 entities and vessels connected to Tehran's illicit oil trade. These sanctions build on previous measures from October, following Iran's attack on Israel and nuclear advancements.

Key points include:

• The sanctions aim to prevent funding for Iran's nuclear and missile programs and its support for regional proxies.

• U.S. entities are prohibited from doing business with those sanctioned, and their U.S.-held assets are frozen.

• Among the 21 sanctioned vessels, eight are carrying oil, including the Very Large Crude Carrier (VLCC) Phonix, which is scheduled to discharge its cargo in Rizhao, China.

• Other vessels involved include Min Hang, Vesna, and Bertha, transporting Russian and Nigerian crude.

This enhanced action targets Iran’s shadow fleet, aiming to curb its destabilizing influence through illicit oil sales.

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