Oil prices steady after Opec+ signals plan to return barrels to market
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Production cuts from Opec+ will continue in full in the third quarter and then be gradually phased out over the following 12 months.
PHOTO: REUTERS
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Oil was little changed after Opec+ set out a plan to restore some production as early as October despite concerns over the demand outlook and robust supply from outside the group.
Production cuts will continue in full in the third quarter, before being gradually phased out over the following 12 months, the Saudi Energy Ministry said on June 2 after an Opec+ meeting.
Brent traded near US$81 a barrel and West Texas Intermediate was close to US$77.
Goldman Sachs Group said the Opec+ decision was bearish given a recent increase in inventories, but UBS Group and RBC Capital Markets expressed confidence that the alliance will continue to diligently manage the market.
Most analysts had expected Opec+ to extend the curbs until the end of 2024.
The agreement aims to keep supporting oil prices while easing the production restraints against which some members – such as the United Arab Emirates – have chafed as they sought to have their output levels upgraded.
“We have seen a rather muted price response so far”, and while moderating cuts from October may weigh on the market, demand is still likely to pick up over the coming months, said Saxo Bank head of commodity strategy Ole Hansen.
“We view the US$75 level in Brent as a major line in the sand below which Opec+ would likely step up their efforts to support prices.”
Trading volumes were higher than usual on June 3, but oil option skews are still signalling bearishness. So-called puts – which profit from lower prices – remain at a wide premium over the opposite calls.
Oil capped a monthly loss on May 31 in part due to persistent concerns around the demand outlook for China, the world’s biggest crude importer. The prompt spread for Brent briefly slipped into a bearish contango structure last week, and fuel markets have been flashing signs of weakness.
Futures are still higher in 2024 after geopolitical tensions from the Middle East to Ukraine raised concerns about supply. Israel has pushed back on a ceasefire plan laid out by US President Joe Biden, as the war in Gaza approaches its eighth month. BLOOMBERG
