Oil halts its bullish spree as Angola confirms it's leaving OPEC
Oil prices have been drifting higher for the past week due to the dovish FOMC meeting and a demand forecast upgrade from the EIA. But on Thursday the commodity pulled back from the monthly highs as the Angolan oil minister announced on local TV that the country was leaving the Organisation of Petroleum Exporting Countries (OPEC). The decision was made as they believed their position was not relevant within the organisation. Further to that, the decision was made partly to avoid the cartel enforcing production cuts in the country. The minister confirmed that they had had no direct influence on production so far, but that it might happen sooner or later if they remain in the organisation. He added that “if we were to be forced to cut production, it would go against our goals”.
These comments likely spooked investors as ongoing production cuts are one of the reasons for better price forecasts in 2024. If more countries were to rebel against possible enforced production cuts, then price targets could be lowered further.
For now, the short-term momentum seems to remain on the upside as the commodity is still benefitting from a weaker dollar. The Federal Reserve’s meeting last week was a big driver in the bullish reversal as Powell and his team showed they have become much more dovish than markets were anticipating. Traders rushed to price in more rate cuts in 2024 that will start earlier in the year. For oil, lower rates are a good sign, as it reduces consumer costs and therefore is expected to boost economic growth. That said, if the Fed were to lower rates at an expedited rate, it would likely imply that the economic landscape is worse than anticipated, which would weigh on oil in the longer term. Despite the final Q3 GDP revision coming down to 4.9% from 5.2%, it seems hard to picture right now that the Fed would need to step in to save the economy, but it is a factor to consider when forecasting oil prices in 2024.
These comments likely spooked investors as ongoing production cuts are one of the reasons for better price forecasts in 2024. If more countries were to rebel against possible enforced production cuts, then price targets could be lowered further.
For now, the short-term momentum seems to remain on the upside as the commodity is still benefitting from a weaker dollar. The Federal Reserve’s meeting last week was a big driver in the bullish reversal as Powell and his team showed they have become much more dovish than markets were anticipating. Traders rushed to price in more rate cuts in 2024 that will start earlier in the year. For oil, lower rates are a good sign, as it reduces consumer costs and therefore is expected to boost economic growth. That said, if the Fed were to lower rates at an expedited rate, it would likely imply that the economic landscape is worse than anticipated, which would weigh on oil in the longer term. Despite the final Q3 GDP revision coming down to 4.9% from 5.2%, it seems hard to picture right now that the Fed would need to step in to save the economy, but it is a factor to consider when forecasting oil prices in 2024.