The Organization of the Petroleum Exporting Countries and its allies, including Russia, known as OPEC+, have decided to extend their voluntary production cuts into the second quarter. This move, announced by Saudi Arabia's official press agency, comes as no surprise to analysts who believe that producers are cautious about restoring lost volume to the market amidst demand uncertainty.
Saudi Arabia Leads with 1 Million Barrel Cut
Saudi Arabia will continue its voluntary production cut of 1 million barrels a day, which was initially put in place in July 2023, until the end of the second quarter in coordination with other OPEC+ participating countries. This additional 1 million-barrels-a-day cut is on top of the 500,000 barrels a day reduction previously announced by Saudi Arabia that runs until the end of this year.
Gradual Return in Sight
The decision to extend these cuts reinforces the group's commitment to a gradual return of supply to the market. Analysts, such as Giacomo Romeo from Jefferies, suggest that this gradual return might not happen until the third quarter when demand typically strengthens. The focus now shifts to the next meeting of OPEC+ officials in early June to determine if the cuts will be extended beyond the second quarter.
Impact on Oil Prices
Since OPEC+ implemented cuts in late November, oil prices have seen a gradual increase but still remain below the highs of 2023. Despite geopolitical tensions, such as the Israel-Hamas conflict, failing to push crude prices higher, last week saw a rally with Brent ending at $83.55 a barrel and West Texas Intermediate at $79.97 a barrel.
Oil prices continue to fluctuate, with Brent up 8.5% year-to-date but remaining more than 13% below its 52-week high, while West Texas Intermediate is up 11.6% this year but still 14.6% below its peak last September.
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