Oil prices edge lower as traders absorb extended OPEC+ production cuts

Posted By: EN Todayon: March 04, 2024In: General Energy News, Oil & Gas News

Oil futures struggled Monday to build on last week’s gains, finding no lasting support from a widely expected decision by the Organization of the Petroleum Exporting Countries and its allies to extend voluntary production cuts through the second quarter.

Price moves

West Texas Intermediate crude for April delivery
CL00,
-0.66%

CL.1,
-0.66%

CLJ24,
-0.66%
fell 36 cents, or 0.5%, to $79.61 a barrel on the New York Mercantile Exchange.
May Brent crude
BRN00,
-0.53%

BRNK24,
-0.53%,
the global benchmark, was down 29 cents, or 0.3%, at $83.26 a barrel on ICE Futures Europe.

Market drivers

Oil futures initially rose after OPEC+ extended the output cuts, which amounted to 2.2 million barrels a day. Offering some surprise, Russia said it would cut production by an additional 471,000 barrels per day in the second quarter, according to news reports. Russia cut oil and fuel exports by 500,000 barrels a day in the first quarter on top of its pledged cuts as part of the OPEC+ voluntary agreement.

The overall reductions “show strong unity within the group, something that was put into question after the November ministerial meeting, which saw Angola leaving OPEC,” said Jorge Leon, senior vice president at Rystad Energy, in a note.

“It also shows robust determination to defend a price floor above $80 per barrel in the second quarter. Our market assessment showed that, if OPEC+ rapidly unwound the voluntary cuts, downside price pressure would have accentuated, taking prices down to $77 per barrel in May,” he said.

At the same time, the decision “might also be seen as a sign that demand prospects in the second quarter are less optimistic than the group thought in November last year,” he said, while noting that OPEC’s estimates of demand for the second quarter have actually increased.

Traders are also watching cease-fire talks between Hamas and Israel.