Oil prices dipped on Monday as investors processed the intricate agreement by the OPEC+ producer group to extend various levels of output cuts, many extending into 2025.
Brent crude futures for August delivery fell by 42 cents to $80.69 a barrel by 1318 GMT. Similarly, U.S. West Texas Intermediate (WTI) crude futures for July delivery dropped by 45 cents to $76.54 a barrel.
Some analysts characterized the group’s Sunday decision as slightly bearish for oil prices.
The Organization of the Petroleum Exporting Countries and allies, led by Russia and collectively known as OPEC+, are currently reducing output by a total of 5.86 million barrels per day (bpd), approximately 5.7% of global demand.
OPEC+ agreed to extend much of these cuts well into 2025 to support the market amid weaker-than-expected demand growth, persistently high interest rates in key Western economies, concerns about slow demand growth in China, the largest oil importer, and increasing non-OPEC production.
The deal includes extending 3.66 million bpd of cuts, which were set to expire this year, until the end of 2025. Additionally, 2.2 million bpd of voluntary cuts, originally set to expire at the end of this month, will now be maintained until the end of September, after which they will be gradually phased out by September 2025.
“Clearly, the challenge for the group will be to hold or cut back if demand doesn’t prove as robust, and we believe their strong cohesion should allow for greater flexibility if needed,” said J.P. Morgan analyst Christyan Malek.
Since the 2.2 million bpd of extra cuts were always planned to be gradually unwound, Sunday’s decision was seen as somewhat downbeat by some analysts.
“The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish OPEC expectations,” noted analysts at Goldman Sachs.
Callum Macpherson, head of commodities at Investec, pointed out that the eight core members of OPEC+ account for only about 30% of global oil output. This limited proportion makes it challenging for the group to convince markets of its ability to support prices.
“Even achieving this deal has come at the cost of agreeing to output increases in 2025 on top of its plan to unwind the voluntary cuts. It is not clear the additional supply will find a home next year,” Macpherson said.
Since Reuters first reported on this potential OPEC+ deal last week, the front-month Brent contract has dropped by a few dollars.
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