Oil nudges higher after OPEC+ extends output cuts

Oil prices nudged higher on Monday after OPEC+ members agreed to extend voluntary oil output cuts to the end of the second quarter, largely in line with market expectations, while Russia pledged to cut production and exports.

Brent futures were 14 cents, or 0.2 per cent higher, at $83.69 a barrel at 0415 GMT, while the US West Texas Intermediate (WTI) inched up 2 cents to $79.99 a barrel.

Prompt Brent inter-month spread widened 5 cents to 90 cents a barrel while the six-month spread gained 15 cents to $4.49 in backwardation, a sign that traders are expecting supply to tighten ahead. Backwardation refers to a market structure where prompt prices are higher than those in future months.

“Signs of tightness in the physical market continue to push crude oil higher. Output cuts by the OPEC+ alliance continue to reduce supply as the market worries about the renewed tensions in the Middle East,” ANZ analysts said in a note on Monday.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) is extending their voluntary oil output cuts of 2.2 million barrels per day into the second quarter and this is expected to cushion the market amid global economic concerns and rising output outside the group, with Russia’s announcement surprising some analysts.

Russia will cut its oil output and exports by an additional 471,000 bpd in the second quarter, in coordination with some OPEC+ participating countries, its Deputy Prime Minister Alexander Novak said on Sunday.

The OPEC+ cuts would lead to lower production from the group at 34.6 million bpd in the second quarter against an earlier forecast that output could rise above 36 million bpd in May as producers unwind supply cuts, Jorge Leon, a senior vice president at consultancy Rystad Energy said in a note.

“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,” he said.

“It also shows robust determination to defend a price floor above $80 per barrel in the second quarter.”

Rising geopolitical tensions due to the Israel-Gaza conflict and Houthi attacks on Red Sea shipping have supported oil prices in 2024, although concern about economic growth has weighed.

Yemen’s Houthis rebels vowed on Sunday to continue targeting British ships in the Gulf of Aden following the sinking of UK-owned vessel Rubymar.

In some of the strongest comments by a senior US leader, US Vice President Kamala Harris on Sunday demanded Hamas agree to an immediate six-week ceasefire while forcefully urging Israel to do more to boost aid deliveries into Gaza.

Washington has insisted the ceasefire deal is close and has been pushing to put in place a truce by the start of Ramadan, a week away. A US official on Saturday said Israel has agreed on a framework deal.

Read: OPEC+ producers extend oil output cuts to second quarter