Brent remains elevated due to OPEC+ production cuts

Front-month ICE Brent has increased by $0.97/bbl on the day, to $85.22/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent price movement is currently dominated by unexpected output cuts announced by OPEC+, led by Saudi Arabia. The latest OPEC+ oil production cuts totalling 1.16 million b/d through 2023 are in addition to the 2 million b/d output cuts announced last October.

China's reopening has raised concerns over tightening oil supplies. ANZ commodity strategist Daniel Hynes believes that OPEC+ output cut could threaten "to push the market into deficit quickly.” “This move sends a strong message to the market, with OPEC drawing a line in the sand regarding oil prices,” he adds.

Brent futures are also drawing support from a steep fall in US emergency reserves, which have fallen to their lowest levels since 1983. This might keep the Biden administration away from releasing more oil to lower rising oil prices.

The number of rigs extracting crude oil and natural gas in the US fell by three to 755 last week, after rising for two consecutive weeks, Baker Hughes reported. This is the first quarterly drop in the US rig count since 2020.

Downward pressure:

Lingering concerns about the pace of China's economic recovery post-lockdown has limited Brent's price increase. OANDA’s senior market analyst Edward Moya has noted that OPEC’s production cut signals that oil producers are “not confident with the demand outlook.”

Both the European Central Bank and the US Federal Reserve are expected to raise interest rates by 25-basis-point in their upcoming policy meetings. This could weigh on Brent prices amid growing concerns about a recession in the US and Europe.

By Konica Bhatt

Please get in touch with comments or additional info to news@engine.online