OPEC+ likely to extend voluntary cuts into second quarter – analysts

OPEC+ is expected to extend voluntary production cuts of 2.2 million b/d into the second quarter of this year in order to keep Brent prices elevated and uphold its dominant position in the oil market.

PHOTO: Flag of OPEC. Getty Images

The current production cuts of 2.2 million b/d through the first quarter of this year were announced last year. Oil market analysts anticipate that OPEC and its Russia-led allies will extend these voluntary production cuts into the second quarter as well to keep Brent’s prices elevated.  

“Despite ongoing concerns about global oil demand trailing production growth, the market remains skeptical that OPEC+ will risk undoing the current curbs, which could precipitate a significant decline in oil prices,” said SPI Asset Management’s managing partner Stephen Innes.

Moreover, OPEC+'s de facto leader, Saudi Arabia, already said that the production cuts could continue beyond the first quarter if needed, Reuters reported.

“OPEC signals to the market that their production cuts will be extended,” Price Futures Group’s senior market analyst Phil Flynn said.

In a survey conducted by Bloomberg, 14 out of 17 oil market watchers anticipate that the coalition will extend the current supply agreement into the second quarter. The group is scheduled to meet in early March to discuss its output strategy.

“The group [OPEC+] could announce its decision over the first week of March and expectations are that the group may extend the existing cuts,” two analysts from ING Bank said.

Extending the output cuts into the second quarter is "likely," Reuters reported, quoting one of the OPEC+ sources. Also, two other sources said a longer extension until the end of the year was also a possibility.

The core 12 OPEC member countries produced 26.3 million b/d of crude oil in January, marking a decrease of 350,000 b/d month-on-month.

Demand projections

OPEC expects robust global oil demand growth of 2.2 million b/d this year. Conversely, the International Energy Agency (IEA) projects a slower growth rate, expecting global oil demand to increase by only 1.2 million b/d this year.

“With the demand outlook remaining uncertain, we think OPEC will extend the current supply agreement to the end of the second quarter,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

By Aparupa Mazumder 

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