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Agencies

Eight members of the OPEC+ group of oil-producing nations announced on Sunday they were extending voluntary supply cuts for one more month, until the end of December with prices edging up early on Monday.

The move is aimed at boosting oil prices amid uncertain demand and accelerating supply, with an eye on the imminent U.S. presidential election, though analysts predict a limited impact.

The eight countries “have agreed to extend the November 2023 voluntary production adjustments of 2.2 million barrels per day for one month until the end of December 2024”, the Vienna-based Organization of the Petroleum Exporting Countries (OPEC) said in a statement.

The eight from the 22-member group extending the cuts are leaders Saudi Arabia and Russia, as well as Algeria, Iraq, Kazakhstan, Kuwait, Oman and the United Arab Emirates (UAE).

They have been delaying production increases amid concerns over slowing demand, which has weighed on oil prices in recent months.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said the announcement was “the logical next step of the persistent downside pressure on oil prices due to sluggish Chinese and weakening global demand outlook and ample non-OPEC supply.” But any boost to oil prices would “unlikely” last unless OPEC+ “takes further measures to restrict production,” Ozkardeskaya told Agence France-Presse (AFP).

And even then, “their restriction strategy hasn’t led to a sustainable rise of oil prices,” she said, adding the grouping now accounted for less than half of the global oil output.Jorge Leon, an analyst with Rystad Energy, said OPEC+ was awaiting the results of the Nov. 5 U.S. presidential election, which “will have a significant impact on the oil market.” “I am not so sure who would OPEC prefer but a trade war would mean lower demand,” Leon told AFP, adding a trade war was “likely” if Republican Donald Trump wins.OPEC+ ministers are due to meet in early December in Vienna at the group’s headquarters, but with Sunday’s announcement, the eight countries have already decided not to reopen the taps until at least early 2025.

“While the delay until January does not change fundamentals significantly, it does potentially leave the market having to rethink the strategy of OPEC+,” ING analysts said in a note.

“This delayed supply increase means that maybe the group are more willing to support prices than many believe,” they said.During the last ministerial meeting in June, OPEC+ had still announced they wanted to increase their production from October, though it has stressed that this decision could be reviewed at any time.

Oil prices, however, extended gains on Monday, rising more than $1 on a decision by OPEC+ to delay by a month plans to increase output.

Brent futures rose by $1.39 per barrel, or 1.9%, to stand at $74.49 a barrel by 7:22 a.m. GMT. U.S. West Texas Intermediate (WTI) crude rose by $1.41 a barrel, or 2.0%, to stand at $70.90.

Brent and WTI posted weekly declines last week of about 4% and 3%, respectively, as record U.S. output weighed on prices. But both contracts edged up on Friday on reports that Iran could launch a retaliatory strike on Israel within days.

“It is questionable whether the price uptrend will be sustained as previous initial positive reaction to the delayed output hike and geopolitical tension have eventually fizzled off,” said Yeap Jun Rong, a market strategist at IG.

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05/11/2024
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