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Oil prices steady as investors assess OPEC+ output cut extension

Oil extend gains as US stockpiles fall
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June 03, 2024 (MLN): Oil prices held steady on Monday, with investors weighing OPEC+'s move to extend deep output cuts into 2025.

Brent crude traded near $81.03 per barrel, down by 0.10% on the day. Last week it lost 0.8%.

While West Texas Intermediate crude (WTI) was at $76.88 per barrel, down by 0.14% on the day.

The Organization of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC+, are currently cutting output by a total of 5.86 million barrels per day (bpd), which is about 5.7% of global demand, as Reuters reported.

This includes 3.66m bpd of cuts that were due to expire at the end of 2024, and voluntary cuts by eight members of 2.2m bpd to expire by the end of June 2024.

But on Sunday, the group agreed to extend the cuts of 3.66m bpd by a year until the end of 2025.

It will also prolong the cuts of 2.2m bpd by three months until end-September 2024, before phasing it out over a year from October 2024 to September 2025.

Analysts said investors will take time to do the math of the reduction in production and digest the decision.

"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 echoed the sentiment, saying that the meeting was viewed as bearish despite the extension of production cuts, as eight OPEC+ countries had already signalled plans to gradually phase out the 2.2m bpd of voluntary cuts over the October 2024 to September 2025 period.

"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 said.

"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, Gaza conflict mediators urged Israel and Hamas to finalize a ceasefire and hostage release deal outlined by U.S. President Joe Biden, though Israel has said there will be no formal end to the war as long as Hamas retains power.

Israel said it was assessing a governing alternative to the Iran-backed group.

An aide to Prime Minister Benjamin Netanyahu said Israel had accepted a framework deal for winding down the Gaza war, though the aide said it was flawed and in need of much more work.

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Posted on: 2024-06-03T15:16:12+05:00