Oil treads water after Opec+ extends production cuts

London — Oil prices were little changed on Monday after the widely expected extension of voluntary output cuts to the middle of the year by the Opec+ producer group on Sunday.

Brent futures slipped 14c to $83.41 a barrel at 10.35am GMT (12.35pm) after rising 2.4% last week. US West Texas Intermediate (WTI) fell 23c to $79.74 a barrel after a 4.6% gain last week.

Opec and its allies (Opec+) are extending their voluntary oil output cuts of 2.2-million barrels per day (bpd) into the second quarter. It is expected to cushion the market amid global economic concerns and rising output outside the group, with Russia’s announcement surprising some analysts.

Russia will cut its oil output and exports by an additional 471,000 bpd in the second quarter, in co-ordination with some Opec+ participating countries, its deputy prime minister, Alexander Novak, said on Sunday.

The market’s reaction does not necessarily reflect the gravity of the Opec+ announcement, lead crude oil analyst at Kpler Viktor Katona said.

Russia’s additional cut is closely correlated with a 400,000 bpd drop in the country’s refinery runs, largely stemming from Ukrainian drone strikes on refining assets across Russia.

“Moscow’s decision to cut production runs contrary to its previous vows when they have really cut exports and just kept barrels at home for refining purposes.”

While there has been little price movement because the Opec+ decision had been expected, low-sulphur, or sweet, crude markets are tightening, widening Brent spreads, traders said.

The premium of the first-month Brent crude contract to the six-month contract reached $4.56 a barrel. This structure, called backwardation, indicates a perception of tight prompt supply.

The Opec+ cuts would lead to a lower production from the group at 34.6-million bpd in the second quarter against an earlier forecast that output could rise above 36-million bpd in May as producers unwind supply cuts, Jorge Leon, a senior vice-president at consultancy Rystad Energy said.

“This new move by Opec+ clearly shows strong unity within the group, something that was put into question after the November ministerial meeting, which saw Angola leaving Opec,” he said.

“It also shows robust determination to defend a price floor above $80 per barrel in the second quarter.”

Rising geopolitical tensions due to the Israel-Hamas conflict and Houthi attacks on Red Sea shipping have supported oil prices in 2024, though concern about economic growth has weighed.

Yemen’s Iran-backed Houthis vowed on Sunday to continue targeting British ships in the Gulf of Aden after the sinking of UK-owned vessel Rubymar.

Reuters