Oil Prices Rise as OPEC+ Extends Output Cuts
Oil prices saw a slight increase on Monday following the decision by the oil cartel OPEC+ to prolong voluntary output reductions until the second quarter. This move is aimed at maintaining stability in the volatile crude markets in the short term.
Brent, the global benchmark, rose by 0.38% to $83.87 per barrel on Monday, while U.S. West Texas Intermediate futures also saw a 0.34% increase to $80.24 per barrel.
OPEC+ made the announcement on Sunday that the planned 2.2 million barrels per day of voluntary output cuts for the first quarter would be extended into the following quarter. Saudi Arabia, a key player in OPEC+, stated that it would continue with its voluntary production cut of 1 million barrels per day until the end of the second quarter, maintaining its daily crude production at around 9 million barrels until June.
The decision by OPEC+ to extend the output cuts could be interpreted as a reflection of less optimistic demand projections for the second quarter. Russia, another prominent member of OPEC+, will also reduce its production and export supplies by a combined 471,000 barrels per day until the end of June. Additionally, Iraq and UAE will continue their voluntary production cuts until the end of the second quarter.
Rystad Energy’s Senior Vice President, Jorge Leon, pointed out that this unified action by OPEC+ demonstrates a strong commitment within the group, particularly after Angola’s exit from OPEC last year. He emphasized that the extension signifies a determination to maintain oil prices above $80 per barrel in the second quarter. Leon warned that if OPEC+ were to reverse the cuts hastily, oil prices could drop to $77 per barrel by May.
Despite the ongoing OPEC+ supply cuts and various geopolitical tensions, including maritime attacks by Houthi rebels in the Red Sea and conflicts involving Israel and Hamas, oil prices have remained relatively stable within the $75 to $85 per barrel range over the past six months.
In conclusion, the decision by OPEC+ to extend voluntary output cuts reflects a strategic move to stabilize crude oil markets and uphold a minimum price level in the face of uncertain demand projections and ongoing global challenges.