Oil prices dip despite Opec+ extending production cuts

Voluntary output cuts of 2.2 million barrels per day were extended by three months until the end of September 2025

The Opec logo outside its headquarters in Vienna, Austria. Opec expects strong economic growth from emerging economies. Reuters
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Oil prices dipped on Monday despite the Opec+ group extending production cuts until the end of 2025.

Brent, the benchmark for two thirds of the world’s oil, traded 0.42 per cent lower at $80.77 a barrel at 10.22am UAE time.

West Texas Intermediate, the gauge that tracks US crude, was down 0.40 per cent at $76.68 a barrel.

On Sunday, Opec+ agreed to extend output cuts of 3.66 million barrels per day, which were initially planned to end this year, until the end of 2025.

Meanwhile, the additional 2.2 million bpd voluntary production cuts of eight Opec+ member states were extended by three months until the end of September.

The group also released a plan for gradually unwinding the voluntary curbs on a monthly basis from October 2024 until September 2025, but said that “the monthly increases can be paused or reversed subject to market conditions”.

Based on Opec data, the producer alliance's total supply cuts of 5.86 million bpd represent about 5.7 per cent of global crude demand.

“With most market participants expecting an extension, industry projections for supply and demand balances are unchanged versus last week. Still, we could see near-term price volatility due to a different perception of the decision,” said Giovanni Staunovo, strategist at UBS.

“Some market participants think that Opec+ may flood the market but we disagree with that point. The group still has flexibility and would likely only produce more if it believes those extra barrels will be absorbed by the market.”

Opec expects strong economic growth from emerging economies, particularly China and India, to drive crude demand this year.

The group has maintained an optimistic growth forecast of 2.25 million bpd in its last 11 oil market updates.

In contrast, the US Energy Information Administration and the International Energy Agency are forecasting lower growth rates, estimating an increase of close to one million bpd.

In its latest oil market report, the IEA lowered its oil demand growth forecast for 2024 by 140,000 bpd to 1.1 million bpd, citing weak demand in Europe.

“The fact that Opec has a clear time in mind for waning its supply cut policy is not supportive of oil bulls,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

Easing geopolitical tension in the Middle East also weighed on crude futures on Monday.

Egypt, Qatar and the US called on Hamas and Israel to finalise a ceasefire agreement based on principles outlined by President Joe Biden, as Cairo hosted talks on Sunday. The UAE also voiced support for the agreement.

Last week, Mr Biden proposed a ceasefire deal in three phases.

Starting with a six-week truce, the proposal entails the exchange of Israeli hostages and Palestinian prisoners of war, in addition to a full Israeli withdrawal from Gaza's populated areas.

Updated: June 03, 2024, 10:33 AM