Crude oil eases on lingering supply concerns despite OPEC+ cuts

Crude oil futures eased in midmorning trade in Asia Dec. 4, as supply concerns came to the fore following an inconclusive OPEC+ production cut agreement.

At 11.29 am Singapore time (0329 GMT), the ICE February Brent futures contract was down 53 cents/b (0.67%) from the previous close at $78.35/b, while the NYMEX January light sweet crude contract was down 47 cents/b (0.63%) at $73.60/b.

SAXO APAC analysts said the "market remains comfortable that supply will be ample", in a note Dec. 4, despite production cuts put in place by OPEC+ after the conclusion of the Nov. 30 ministerial meet.

Saudi Arabia, one of the members of OPEC+, aims toraise its oil production capacity to 13 million b/d by 2027 from around 12 million b/d presently, providing further boost to crude supply.

Meanwhile, the cascading effect of a slowdown in Chinese economic activity on other Asian economies also worried investors.

The Caixin China General Manufacturing Purchasing Managers' Index rose to a three-month high of 50.7 in November, from 49.5 in the previous month. A reading above 50 indicates an expansion, while a reading below 50 shows a contraction.

However, the outlook for the energy-intensive manufacturing sector was concerning.

Dovish Fed signs

US Federal Reserve Chair Jerome Powell and member of Federal Reserve Board of Governors Christopher Waller have signaled the end of rate hikes and also the potential of future interest rate cuts.

"He [Powell] mentioned policy is in restrictive territory, and markets interpreted Powell's comments as tilting dovish," SAXO analysts said in the note.

Interest rate cuts will result in a downward pressure on the US dollar, leading to its depreciation.

A depreciating US dollar results in dollar-denominated assets such as oil becoming less expensive to consumers using foreign currencies, pushing demand of crude higher and consequently prices up too.

The ICE US Dollar Index stood at 103.165 at 10.41 am Singapore time (0241 GMT) on Dec. 4, down 0.03% from the previous close.

Shipping attacks

UK authorities reported Dec. 3 multiple threats to shipping transiting the Bab el-Mandeb strait at the entrance to the Red Sea amid heightened risks to vessels in the region from drone attacks.

Threats to shipping in the Red Sea and Bab el-Mandeb area—a major chokepoint for crude and oil products being shipped globally—have ratcheted up in the wake of the war between Hamas and Israel.

Iran-backed Houthi militants have been accused of targeting shipping in the region repeatedly with drones, thus driving the risk premiums of crude up.

Dubai swaps

Dubai crude swaps along with the intermonth spreads were lower in midmorning trade in Asia Dec. 4 from the previous close.

The February Dubai swap was pegged at $78.27/b at 10 am Singapore time (0200 GMT), down $1.79 /b (2.24%) from the Dec. 1 close.

The Jan/Feb Dubai swap intermonth spread remained pegged at 34 cents/b at 10 am, down 15 cents/b over the same period, and the February/March intermonth spread was pegged at 25 cents/b, down 17 cents/b.

The February Brent/Dubai EFS was pegged at plus 32 cents/b, down 21 cents/b.