Oil prices slip after OPEC+ extends voluntary oil output cuts

Marathon Petroleum’s oil refinery in Anacortes, Washington.

David Ryder | Reuters

Oil prices fell Monday after oil cartel OPEC+ agreed to extend voluntary output reductions until the second quarter, in an effort to support the short-term stability of crude markets.

Global benchmark Brent fell 73 cents, or 0.89%, to $82.81 a barrel Monday, while U.S. West Texas Intermediate futures lost $1.15, or 1.46%, to $78.83 per barrel.

OPEC+ announced on Sunday that the 2.2 million barrels per day of voluntary output cuts that were planned for the first quarter of this year will continue into the next quarter.

“As market expectations for a rollover had grown more apparent recently, we believe the extension may have been increasingly priced in,” Walt Chancellor, energy strategist at Macquarie, told clients in a note Sunday.

OPEC+ kingpin and de facto leader Saudi Arabia said it will prolong its voluntary cut of 1 million barrels per day until the end of the second quarter, state-owned Saudi Press Agency said Sunday. Riyadh’s crude production will stand at approximately 9 million barrels per day until the end of June.

“With OPEC loadings appearing steady and aggregate OPEC supply potentially showing little effect from incremental voluntary cuts implemented in Q1, we do not view the extensions from the broader group as particularly impactful,” Chancellor wrote.

Such a move by OPEC+ might also be seen as a sign that demand prospects in the second quarter are less optimistic than the group thought.

Jorge Leon

Rystad Energy’s Senior Vice President

Russia, another OPEC+ heavyweight, will slash its production and export supplies by a combined 471,000 barrels per day until the end of June. Moscow had volunteered to reduce its supplies by 500,000 barrels per day in the first quarter. Other key producers Iraq and UAE will also extend their voluntary production cuts of 220,000 barrels per day and 163,000 barrels per day respectively, until the end of the second quarter.

“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,” Rystad Energy’s
Senior Vice President Jorge Leon wrote in a note following the oil cartel’s decision.

The extension signals “robust determination” to defend a price floor above $80 per barrel in the second quarter, he said, adding that if OPEC+ rapidly unwound the cuts, oil prices will drop to $77 per barrel in May.

“Such a move by OPEC+ might also be seen as a sign that demand prospects in the second quarter are less optimistic than the group thought in November last year,” he said.

Stock Chart IconStock chart icon

Oil prices in the past six months.

Oil prices have been languishing in a narrow $75 to $85 per barrel range since the start of the year, in spite of OPEC+ supply cuts, persistent Houthi maritime attacks in the Red Sea artery and ongoing geopolitical risks from Israel’s war against Hamas.

—CNBC’s Ruxandra Iordache contributed to this report.

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