Oil hardly changed as traders mull extension to Opec+ cut
Analysts say investors will take time to do calculate what the reduction in production means and to digest the group’s decision
New Delhi — Oil prices were little changed on Monday, as investors weighed a move by producer group Opec+ to extend deep output cuts well into 2025.
Brent futures for August delivery were down 4c, or 0.05%, to $81.07 a barrel at 3.44am GMT, after falling to a session low of $80.55. US West Texas Intermediate (WTI) crude futures for July delivery slipped 1c, or 0.01%, to $76.98, after falling to $76.39 earlier.
Brent settled down 0.6% and WTI posted a 1% loss last week.
Oil cartel Opec and allies led by Russia, together known as Opec+, are cutting output by a total of 5.86 million barrels a day (bbl/day), which is about 5.7% of global demand.
This includes 3.66-million barrels a day of cuts that were due to expire at the end of 2024, and voluntary cuts by eight members of 2.2-million barrels a day to expire by the end of June 2024.
But on Sunday, the group agreed to extend the cuts of 3.66-million barrels a day by a year until the end of 2025. It will also prolong the cuts of 2.2-million barrels a day by three months until end-September 2024, before phasing it out over a year from October 2024 to September 2025.
Analysts said investors will take time to do the maths of the reduction in production and digest the decision.
“Overall, I think the decision is slightly bearish, as the market was not expecting Opec+ to start unwinding the cuts in the fourth quarter,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
Goldman Sachs analysts echoed the sentiment, saying that the meeting was viewed as bearish despite the extension of production cuts, as eight Opec+ countries had already signalled plans to gradually phase out the 2.2-million barrels a day of voluntary cuts over the October 2024 to September 2025 period.
“The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish Opec expectations,” the analysts said.
“The communication of a gradual unwind reflects a strong desire to bring back production of several members given high spare capacity.”
In the Middle East, Gaza conflict mediators urged Israel and Hamas to finalise a ceasefire and hostage release deal outlined by US President Joe Biden, though Israel has said there would be no formal end to the war as long as Hamas retained power. Israel said it was assessing a governing alternative to the Iran-backed group.
An aide to Prime Minister Benjamin Netanyahu said Israel had accepted a framework deal for winding down the Gaza war, though the aide said it was flawed and in need of much more work.
Reuters