Oil Prices Surge As OPEC+ Considers Extending Output Cuts

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  • OPEC+ discusses extending voluntary output cuts, potentially until year-end, driving oil prices over $1 per barrel higher.
  • Concerns over tight supplies and geopolitical tensions in Gaza and the Red Sea contribute to market volatility.

Oil prices soared over $1 per barrel on Tuesday amid reports suggesting that OPEC+ is contemplating prolonging voluntary output cuts into the second quarter to bolster market stability. Brent crude futures jumped by $1.12 to $83.65 per barrel, while U.S. West Texas Intermediate crude futures rose by $1.29 to $78.87 per barrel.

OPEC+ Considers Extending Output Cuts

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+), had previously agreed to voluntary production cuts totaling approximately 2.2 million barrels per day for the first quarter of the year. These cuts, led by Saudi Arabia, aimed to balance the market. Now, sources indicate that OPEC+ might prolong these cuts until the end of the year to address concerns over tightening supplies.

Geopolitical Tensions and Supply Concerns

Geopolitical tensions in the Middle East, particularly between Israel and Hamas, along with ongoing conflicts in the Red Sea involving Houthi rebels, contribute to market uncertainties. Israel, Hamas, and Qatari mediators have expressed caution regarding progress towards a truce in Gaza. Meanwhile, Houthi spokespersons have stated that operations in the Red Sea will only cease when Israeli “aggression” against Gaza ends, impacting the cost of transporting energy products and tightening the market.

Supply and Demand Dynamics

In the U.S., crude inventories are expected to have risen about 2.7 million barrels last week, according to a Reuters poll, while distillates and gasoline stockpiles are anticipated to decline. The American Petroleum Institute will release weekly inventory data, followed by the government’s report. Additionally, improving travel demand during the Lunar New Year holiday in China is expected to boost oil demand, counterbalancing concerns over slowing macroeconomic indicators. Russian authorities have also announced a six-month ban on gasoline exports from March 1 to manage rising demand and refinery maintenance.

Market Outlook and Comments by Industry Experts

Market expectations suggest stable crude oil prices around $80 per barrel this year, according to Russel Hardy, CEO of oil and gas trader Vitol. Speaking at the Energy Institute conference, Hardy also mentioned expectations of global oil demand peaking in the early 2030s. Both oil benchmarks had settled more than 1% higher on Monday after declines in the previous week, reflecting market speculation regarding interest rate cuts and their timing.

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Source: Reuters

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