Oil stabilizes after OPEC+ extends production cuts

Oil prices remained relatively steady on Monday following the decision by the OPEC+ alliance to extend voluntary production cuts until the end of the second quarter, in line with market expectations.

Brent crude futures edged down by 14 cents to $83.41 per barrel by 1035 GMT, after experiencing a 2.4 percent increase last week. Similarly, US West Texas Intermediate crude futures slipped by 23 cents to $79.74 a barrel, despite a 4.6 percent gain last week.

OPEC+ member states, including the Organization of the Petroleum Exporting Countries (OPEC) and allied nations, agreed to prolong voluntary production cuts of 2.2 million barrels per day into the second quarter. This decision is anticipated to provide support to the market amidst global economic uncertainties and rising production from non-OPEC+ countries. Notably, Russia’s announcement of an additional reduction in exports and production caught some analysts by surprise.

Russian Deputy Prime Minister Alexander Novak revealed that Russia would lower oil production and exports by an extra 471,000 barrels per day in the second quarter, coordinating with certain OPEC+ countries.

The supplementary Russian cut is linked to a 400,000 barrels per day reduction in the country’s refinery operating rate, largely due to Ukrainian drone strikes on refining facilities across Russia.

Analysts suggest that Moscow’s decision to decrease production contradicts previous pledges, indicating a shift towards prioritizing domestic refining needs.

Jorge Leon, Senior Vice President at Rystad Energy Consulting, highlighted that the OPEC+ cuts would result in a decrease in the group’s production to 34.6 million barrels per day in the second quarter. This contrasts with earlier expectations of production exceeding 36 million barrels per day in May, as producers phased out supply cuts.

Leon noted the strong unity within the OPEC+ group, reaffirmed by this decision, and emphasized their determination to maintain oil prices above $80 per barrel in the second quarter.

Oil prices have also been supported by escalating geopolitical tensions, including the conflict between Israel and Hamas, as well as Houthi attacks on commercial ships in the Red Sea. The Yemeni Houthi group, aligned with Iran, vowed to continue targeting British vessels in the Gulf of Aden following the recent sinking of the Rubymar, owned by a British company.