The Opec+ producers group extended voluntary oil output cuts of 2.2 million barrels per day until the end of November amid a drop in crude prices on concerns of slumping demand.
Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman will pause the scheduled increases of 180,000 bpd in October and November, Opec said in a statement on Thursday.
At the end of the two-month period, "these cuts will be gradually phased out on a monthly basis starting December 1st, 2024 ... with the flexibility to pause or reverse the adjustments as necessary", the statement said.
"The overproducing countries also reconfirmed their commitment that the entire overproduced volume will be fully compensated for by September 2025," it added.
Iraq and Kazakhstan have "overproduced since January 2024, but have strongly reaffirmed their commitment to the agreement", Opec said.
Brent, the benchmark for two thirds of the world's oil, rose slightly following the announcement, but was trading 0.26 per cent lower at $72.51 per barrel at 9.49pm UAE time on Thursday. West Texas Intermediate, the gauge that tracks US crude, was down 0.39 per cent at $68.93 per barrel.
Crude prices hit their lowest in nine months this week, as concerns about weak economic growth, especially in China, have weighed on the market despite supply disruptions from Libya due to a political crisis. Since Opec+'s ministerial meeting in August, Brent prices have dropped by about 5 per cent, with year-to-date losses of roughly the same amount.
"Confidence on the macro narrative for oil demand is dissipating," Edward Bell, head of market economics at Emirates NBD Research, said in a note earlier today.
Along with the weak data from China, expectations of weaker labour market conditions in the US, with non-farm payrolls data to be released later this week, "will reinforce fears of a pending recession in the US economy even after a solid Q2 GDP [gross domestic product] print", he said.
The next major risk for oil this month comes from the US Federal Reserve and the scale of interest rate cut it announces. A 50 basis points cut may be what markets are hoping for, "but if that scale of cut is accompanied with weaker projections for GDP activity this year or a higher unemployment forecast, it is unlikely to restore much confidence that conditions for oil demand will be positive in the final months of the year or into early 2025", said Mr Bell.
Even if the Fed sticks with a 25bps cut, markets will be disappointed with expectations of a recession in the US economy caused by overly tight monetary policy, which is also likely to also take oil prices lower, he added.
Last month, Morgan Stanley lowered its global oil demand growth forecast for this year to 1.1 million bpd, from 1.2 million bpd, citing weakness in the Chinese economy.
The investment bank also reduced its Brent price forecast – it now expects prices to average $80 per barrel in the fourth quarter of 2024, down from its previous estimate of $85 per barrel.
China's second-quarter gross domestic product growth slowed to 4.7 per cent on an annual basis, from 5.3 per cent in the first quarter. The world’s second-largest economy is facing challenges with a real estate crisis, sluggish consumer spending and a deceleration in manufacturing.
