Oil falls from three-week high with extension for output cuts forecast

Analysts expect Opec+ to extend voluntary output cuts of 2.2 million barrels per day next month

The Opec+ alliance of countries has voluntary supply cuts of 2.2 million barrels per day in place until the end of the first quarter. Reuters
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Oil prices fell on Monday from their highest level in three weeks as demand concerns outweighed fears of Middle East supply disruption.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.09 per cent lower at $82.56 a barrel at 1.37pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.59 per cent at $78.72 a barrel.

Crude oil recorded a slight gain last week on increasing tension in the Middle East, the region responsible for about a third of the world’s oil supply.

Israel has warned that it could launch a ground offensive in the Rafah area of Gaza as early as mid-March amid a lack of progress in ceasefire talks.

“Still, supply concerns remain measured due to Opec's overcapacity and a mixed demand outlook,” Saxo Bank market strategists said in a report titled Global Market Quick Take – Asia on Monday.

The Opec+ alliance of countries has voluntary supply cuts of 2.2 million barrels per day in place until the end of the first quarter, which has helped to tighten global crude balances so far as compliance has been high, analysts have said.

An extension of the output cuts is “likely”, and an announcement could happen in March, Energy Aspects, a London-based research consultancy, said in a research note last week.

The next meeting of the Joint Ministerial Monitoring Committee is scheduled for April 3.

This month, Swiss lender UBS said it expected the group to extend its production cuts until the middle of the year.

“We continue to see the oil market as slightly undersupplied and look for Brent to move into a $80-to-$90 a barrel range over the coming months,” the bank said.

Opec production last month decreased by 350,000 bpd from December to 26.24 million bpd, the group said in its February oil market report.

Libya reported the largest drop in output due to protests that resulted in the shut down of the 300,000 bpd Sharara field for about three weeks.

The International Energy Agency’s prediction of lower global oil demand this year weighed on oil futures last week.

The Paris-based agency slashed its crude demand growth forecast for 2024 to 1.22 million bpd, from 1.24 million bpd, and said that global oil consumption was “losing momentum”.

Meanwhile in the US, producer prices climbed more than expected in January, raising concerns in financial markets that inflation was picking up after months of cooling.

The producer price index increased by 0.3 per cent last month, the largest increase since August 2023, after falling by a revised 0.1 per cent in December, the Labour Department said.

Economists polled by Reuters were expecting an increase of 0.1 per cent following an earlier reported 0.2 per cent drop.

Updated: February 19, 2024, 10:57 AM