Oil prices lower as OPEC+ production-cut extension suggests weak demand outlook

Price moves

• West Texas Intermediate crude for April delivery
  CL00,
  -1.46%

  CL.1,
  -1.46%

  CLJ24,
  -1.46%
  fell $1.23, or 1.5%, to settle at $78.74 a barrel on the New York Mercantile Exchange, after ending last week with a 4.6% gain.

• May Brent crude
  BRN00,
  +0.07%

  BRNK24,
  +0.07%,
  the global benchmark, lost 75 cents, or 0.9%, at $82.80 a barrel on ICE Futures Europe.

• April gasoline
  RBJ24,
  -1.06%
  edged down by 1.1% to $2.59 a gallon, while April heating oil
  HOJ24,
  -2.30%
  lost 2.1% to $2.65 a gallon.

• Natural gas for April delivery
  NGJ24,
  +5.23%
  settled at $1.92 per million British thermal units, up 4.4%. Prices gained 8% last week after posting a February loss of over 11%.

Market drivers

“The extension of OPEC+ production cuts likely highlights some bearishness in global demand expectations by the group,” said Rohan Reddy, director of research at Global X, in emailed commentary.

Some factors out of OPEC+’s control, such as increasing U.S. supply, are also putting pressure on OPEC+ to curtail its own production, he said. The challenge for the group has been “balancing non-OPEC+ supply growth alongside stagnating global demand.”

Oil futures initially rose after OPEC+ extended the output cuts, which amounted to 2.2 million barrels a day. Offering some surprise, Russia agreed to voluntarily cut production and exports by an additional 471,000 barrels per day in the second quarter.

OPEC+ said Russia’s voluntary cut is in addition to the voluntary reduction of 500,000 barrels a day it previously announced in April 2023, which extends to the end of December 2024.

The overall reductions “show strong unity within the group, something that was put into question after the November ministerial meeting, which saw Angola leaving OPEC,” Jorge Leon, senior vice president at Rystad Energy, said in a note.

“It also shows robust determination to defend a price floor above $80 per barrel in the second quarter. Our market assessment showed that, if OPEC+ rapidly unwound the voluntary cuts, downside price pressure would have accentuated, taking prices down to $77 per barrel in May,” he said.

At the same time, the decision “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, while noting that OPEC’s estimates of demand for the second quarter have actually increased.

Traders are also watching cease-fire talks between Hamas and Israel. A Hamas delegation arrived in Cairo Sunday for talks but Israel decided not to attend after Hamas apparently refused a request to provide a list of living hostages, according to the The New York Times.