June 3 2024: Oil prices remained stable on Monday as investors evaluated OPEC+’s decision to extend significant output cuts until 2025.
Brent futures for August delivery dipped by 4 cents, or 0.05%, to $81.07 a barrel at 0344 GMT, after hitting a session low of $80.55. U.S. West Texas Intermediate (WTI) crude futures for July delivery slipped by 1 cent, or 0.01%, to $76.98, after reaching a low of $76.39 earlier.
Brent saw a 0.6% decline last week, while WTI posted a 1% loss.
The Organization of the Petroleum Exporting Countries and allies led by Russia, collectively known as OPEC+, are currently cutting output by 5.86 million barrels per day (bpd), approximately 5.7% of global demand. This includes 3.66 million bpd of cuts set to expire at the end of 2024 and voluntary cuts by eight members totaling 2.2 million bpd, which were due to expire by the end of June 2024.
However, on Sunday, OPEC+ agreed to extend the 3.66 million bpd cuts by a year until the end of 2025 and prolong the 2.2 million bpd cuts by three months until the end of September 2024, before phasing them out from October 2024 to September 2025.
Analysts suggest that investors will need time to assess the implications of these production reductions.
“Overall, I think the decision is slightly bearish, as the market was not expecting OPEC+ to start unwinding the cuts in the fourth quarter,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
Goldman Sachs analysts shared a similar view, noting that the meeting was perceived as bearish despite the extension, as eight OPEC+ countries had already indicated plans to phase out the 2.2 million bpd voluntary cuts from October 2024 to September 2025.
“The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish OPEC expectations,” the analysts stated. “The communication of a gradual unwind reflects a strong desire to bring back production of several members given high spare capacity.”
In the Middle East, mediators of the Gaza conflict urged Israel and Hamas to finalize a ceasefire and hostage release deal outlined by U.S. President Joe Biden. However, Israel stated that there would be no formal end to the war as long as Hamas remains in power. Israel is reportedly assessing an alternative governing structure to the Iran-backed group.
An aide to Prime Minister Benjamin Netanyahu mentioned that Israel had accepted a framework deal to wind down the Gaza war but noted that the deal was flawed and required more work.
