Oil prices rose Monday as OPEC+ extended output cuts through the second quarter, aligning with expectations. Russia also committed to reducing production and exports, contributing to the surge.
Brent futures ending in May soared by 0.41% to $83.89 per barrel. Moreover, West Intermediate (WTI) futures expiring in April climbed by 0.35% to $80.25 a barrel.
Meanwhile, analysts said rising crude oil is attributed to ongoing tightness in the physical market. The Organization of the Petroleum Exporting Countries (OPEC+) output cuts and concerns over renewed Middle East tensions are vital factors.
The organization has decided to prolong its voluntary oil output cuts of 2.2 million barrels per day (bpd) into Q2. This move aims to support the market amid economic uncertainties and increased production outside the group, with Russia’s announcement surprising analysts.
Furthermore, Deputy Prime Minister Alexander Novak stated that Russia will collaborate with certain OPEC+ members to cut its oil production and exports by an extra 471,000 bpd during the second quarter.
As an expert noted, OPEC+ reductions are anticipated to result in reduced group production of 34.6 million bpd in the second quarter, contrary to the initial projection of surpassing 36 million bpd in May due to supply cut reversals.
He also emphasized that the recent OPEC+ decision reflects unity within the group, dispelling concerns raised since the November ministerial meeting, during which Angola exited the organization.
OPEC+ Output Cuts Support Oil to Recover
Analysts predicted the rollover, but the extension until the end of the second quarter comes as a surprise, considering the market is expected to open strong.
For the second quarter, Iraq, UAE, and Kuwait will extend Q2 output cuts of 220,000 bpd, 163,000, and 135,000, respectively. Furthermore, Algeria plans a 51,000-bpd reduction, and Oman will cut by 42,000 bpd, while Kazakhstan will extend its 82,000 bpd voluntary cuts.
Since late 2022, OPEC+ has enforced output reductions to stabilize the market due to increased production from the US and other non-members and concerns about demand amid major economies facing elevated interest rates.
Records indicate that the group has committed to output reductions since 2022, totaling over 5.86 million bpd, equivalent to 5.7% of the global daily demand.
Meanwhile, the International Energy Agency (IEA) predicts a setback for OPEC+ as global oil supply, mainly from non-OPEC+ players like the US, Brazil, and Guyana, may reach a record 103.8 million bpd in 2024.
