Brent oil rose over $84 as OPEC+ extended voluntary supply cuts

Brent and WTI crude oil prices hit a fresh yearly high of nearly $84.70/b and $80.50/b respectively on Monday morning after the OPEC+ group extended its voluntary oil supply cutbacks to the middle of the year in a bid to avert a global surplus and support higher crude oil prices.

Brent crude oil, 4-hour chart

In a well-expected move, heavyweights Saudi Arabia and Russia, alongside several other key OPEC+ producers decided on Sunday to extend their 2.2 million bpd voluntary production cut by another fiscal quarter (until the end of Q2-June 2024). (Source: www.euronews.com) 

The voluntary 2.2 million barrels per day supply cut by some OPEC+ producers is separate from the group’s official strategy, in which the OPEC+ countries had held a formal policy of collectively reducing their output by 3.63 million barrels per day until the end of 2024, back in November 2023.

As a result, the OPEC+ alliance had agreed to cut a total of about 5.86 million bpd, equal to about 5.7% of daily world demand, according to Reuters calculations. (Source: www.reuters.com) 

The extension of the voluntary supply cut until the middle of the year was necessary to offset a seasonal reduction in world fuel consumption (a weaker demand for petroleum), together with the surging crude oil production from several of OPEC+’s rivals, including the U.S. shale drillers, Canada, Brazil, Guyana, and other smaller oil producers outside of the OPEC+ alliance.

Crude oil prices fell as low as $70/b in December 2023 due to softer fuel demand from the world’s top crude importer, China, due to an economic and property crisis, despite the OPEC+ supply cuts and the persistent geopolitical risk in the Middle East.

Saudi Arabia, de facto leader of the OPEC-Organization for the Petroleum Exporting Countries, will extend its voluntary crude production cut of 1 million barrels per day until the end of the second quarter, keeping the crude production to around 9 million bpd.

Russia will also cut oil production and exports by an additional 471,000/bpd for the same period, adding to the pledge for a volunteer export cut by a slightly higher 500,000/ bpd in the first quarter of 2024.

Hence, the other OPEC key producers Iraq and UAE will also prolong their voluntary production cuts of 220,000/bpd and 163,000/bpd, respectively, for the same period.