Oil prices expected to remain steady despite OPEC production cuts
A group of the world’s largest oil producers agreed to extend production cuts through the end of the year as it tries to support sagging prices. The OPEC+ alliance, led by Saudi Arabia and includes Russia, has agreed to extend its voluntary production cuts through the end of the year to maintain stable oil prices. The cuts, amount to 5.8 million barrels per day, also include expanded exports from some OPEC members. Oil prices have remained steady despite ongoing war in the Middle East and the beginning of summer travel season in the U.S. Despite OPEC's announcement, oil prices fell further as analysts dissected the plan for unwinding them. The longer-term outlook for global oil demand is uncertain due to weaker demand in developed economies.
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A group of the world’s largest oil producers agreed to extend production cuts through the end of the year as it tries to support sagging prices that have remained steady despite war in the Middle East and the beginning of summer travel season in the U.S.
The OPEC+ alliance, which is led by Saudi Arabia and includes Russia, said in an announcement over the weekend that it would extend its voluntary production cuts as they try to maintain stable prices that have mostly been hovering around $80 to $83 per barrel for the last month.
The production cuts amount to a total of 5.8 million per day, but the announcement also included expanded exports from some OPEC members. While OPEC’s announcement was focused on extended cuts, oil prices fell even further on Monday as analysts dissected the plan for unwinding them, falling below $80 a barrel.
According to OPEC’s statement, all 23 members of the cartel agreed to cuts of 2 billion barrels a day, along with another voluntary cut of 1.65 million barrels a day. Another voluntary cut of 2.2 million barrels a day that was set to expire at the end of June was extended but will then be gradually reduced on a monthly basis until they are gone next September.
Oil prices have fallen over the last two months even with a war continuing in the Middle East and attacks on ships in the Red Sea as other oil-producing countries, including the U.S., have ramped up supply. The supply chain has also recalibrated away from Russia after its invasion of Ukraine helped push prices toward $100 a barrel, further easing price pressures.
“Saying they're going to maintain the cuts as they are also first maintains any levels of cheating that are going on, so no real change in policy,” said Ed Hirs, an energy fellow at the University of Houston. “Even though OPEC has pledged to keep its production down, it's doing pretty well to maintain stable prices while others fill back for what OPEC has cut.”
Several nations in OPEC+ have overproduced from the agreed curbs, which has helped blunt their impact.
The cuts could push prices higher in the coming months with warmer weather in the U.S. requiring more energy to power air conditioning and summer travel picking up, but the longer-term outlook is more uncertain when it comes to demand. In its most recent monthly report, the International Energy Agency cut its forecast for the growth in global oil demand due to weaker need in developed economies.
Prices at the pump move up and down along with oil prices and have been on a decline with the recent slump for oil markets. As of Monday, the national average for a gallon of gasoline was $3.53 a gallon, according to AAA. Gas prices are expected to decline in the coming weeks until mid-summer, when there could be some more upward fluctuation if travel ramps up.
What demand drivers and others have for gas and fossil fuel products will decide what happens with oil prices moving forward. A report from the U.S. Energy Information Administration will be released on Wednesday, which will provide data on how much gasoline was consumed around the Memorial Day weekend, the start of summer vacations and driving season.
Lower prices at the pump and other fossil fuels like natural gas are good news for the Biden administration, especially if those trends continue into November. Energy prices are among the most visible signs of price increases that have frustrated Americans after inflation took off following the pandemic.
High gas prices prompted the Biden administration to release millions of barrels of oil from the country’s strategic reserve while it pushed American companies to ramp up production to lower prices for consumers and added to the political headache facing the president’s reelection campaign. Even if demand rises enough to start pushing prices higher, industry analysts aren’t expecting much movement from the White House.
“We're gonna see basically a policy of benign neglect unless prices jumped significantly one way or the other,” Hirs said.
المواضيع: Markets, Oil & Gas