Oil price low despite extension of production cut agreement.. What’s the story?

Oil price low despite extension of production cut agreement.. What’s the story?

Global crude oil prices have fallen since the start of last week’s session, despite OPEC+ announcing on June 2 that it will extend the mandatory oil production cut agreement for an additional year.

The expiration date of the mandatory oil production cut agreement will be in December 2025 instead of the earlier date planned at the end of 2024.

Even before the last extension, in 2023, the coalition agreed to extend the reduction deal until the end of 2024 instead of the end of last year as indicators emerged of weak demand in the market.

The deal, which began in November 2022, involves cutting oil production by about 3.7 million barrels a day among 22 members led by Saudi Arabia and Russia.

Eight countries in the alliance are participating in a voluntary agreement to cut oil production by 2.2 million barrels per day starting in July 2023 and ending in the third quarter of 2024.

According to OPEC data, the average global demand for crude oil is 103 million barrels per day, which is estimated to be 102.6 million barrels in 2023.

Reasons for the fall in oil prices

In the first trading session since the OPEC+ decision on June 3, oil prices fell 2% below $80 a barrel of Brent oil, ignoring the alliance’s decision.

In last Wednesday’s trade, the barrel price fell to $77.9 per barrel, down from $79 per barrel before the end of Friday’s trading, compared to an average of $82 per barrel before the end of the alliance.

See also  Israel "De-escalates War" in Gaza, US Plans

In early trading on Monday, the price of a barrel of Brent hit around $79.1, which is still lower than it was recorded before the alliance announced the extension of the production cut agreement.

The main reason for the decline in crude oil prices is that the extension decision reflects the challenges faced by the OPEC+ alliance regarding global demand for crude oil.

These challenges, coupled with the appearance of a slowdown in global oil demand growth, prompted the alliance to extend a deal to cut oil production, sending a message to markets that weak demand will remain for another period.

Through agreements to cut oil production, the alliance tries to maintain a balance between supply and demand for crude oil, and prevent inventories from piling up among consumers.

He is also trying to achieve what he describes as a reasonable price per barrel of roughly $95, compared to current levels of less than $80 per barrel.

Prices also fell in line with some of the economic challenges China is facing domestically due to the real estate crisis, which has affected the overall economy.

China is the world’s largest importer of crude oil, with more than 10 million barrels per day, and the second-largest consumer after the United States, with an average of 14.5 million barrels per day.

Also, new US tariffs on Chinese goods late last month added further pressure to China’s crude demand.

Together these factors put pressure on prices and overshadowed the alliance’s decision to extend the production cut deal, meaning that prices continuing at current levels could push the alliance to shift current policy toward new, more stringent terms.

See also  In Pictures - Policy Echoes of American University Solidarity Reach Rafa Tents

Another reason for the fall in prices is related to voluntary production cuts of 2.2 million barrels per day. It was the coalition’s decision to scrap voluntary cuts in oil production, starting next October and ending in September 2025. It seeks to stabilize the global oil market.

Over the past two months, oil prices have experienced a significant decline, with the easing of geopolitical tensions and signs of reduced demand for crude oil, particularly with the recent crises in China’s economy.
(Anatolia, al-Arabi al-Jadith)

Leave a Reply

Your email address will not be published. Required fields are marked *