OPEC+ output cuts deepen oil shortage, IEA warns

April 17, 2023 (MLN): Oil prices were mixed on Monday during the early Asia trading session, supported by OPEC+'s decision to cut more output.

Brent crude fell by 0.21% to $85.91 per barrel, while U.S. West Texas Intermediate (WTI) crude climbed 0.3% to $82.64 per barrel.

Both benchmarks for crude oil prices marked their fourth consecutive weekly gains last week, the longest streak since mid-2022 after the International Energy Agency (IEA) predicted record demand in 2023 of 101.9 million barrels per day, which is 2 million barrels more than last year.

The increase in oil prices was also attributed to the hope for an economic recovery in China, the world's second-largest oil consumer.

Despite the positive outlook, the IEA warned in its monthly report that OPEC+'s output cuts may hurt demand and recovery by deepening the oil shortage later this year. High Middle East crude prices push Asian refiners to other sources and more gasoline, reducing diesel production.

Although the market has seen a tighter supply recently, demand concerns remain.

The arbitration case that ordered Turkey to pay Iraq around $1.5 billion for allowing unauthorized oil exports by the Kurdistan Regional Government has halted northern Iraqi crude shipments to Ceyhan for nearly three weeks now.

Investors are keeping an eye on China's first-quarter gross domestic product (GDP) data, which is expected to be positive for commodity prices, as well as earnings from U.S. companies, which could provide clues for the Federal Reserve's policy path and the dollar's trajectory.

According to IG Analyst Tony Sycamore, the crude oil demand could weaken as the market expects fewer rate cuts from the Fed, as reported by Reuters.

Traders are betting that the Fed will raise its lending rate in May by another quarter of a percentage point, and expectations of rate cuts are pushed out to later this year.

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