Oil Prices Hold Steady as OPEC+ Extends Production Cuts into Next Year

Oil Prices Steady Following OPEC+ Production Cuts Extension: Oil prices remained steady after OPEC+ decided to extend all production cuts into next year while outlining a gradual phase-out plan for some reductions. This move aims to stabilize the market considering demand growth, high interest rates, and increasing U.S. production.

Current and Extended Cuts: OPEC+ is cutting output by 5.86 million bpd, about 5.7% of global demand. This includes 3.66 million bpd extended to the end of 2025, and 2.2 million bpd by eight members until September 2024. The 2.2 million bpd cuts will be phased out gradually from October 2024 to September 2025.

Production Quotas for 2025: Quotas for 2025 remain largely unchanged, with the exception of the United Arab Emirates (UAE), which received an additional allocation of 300,000 bpd. The UAE will gradually raise its output over the first nine months of the year.

Economic Concerns: Oil prices have been under pressure from concerns that the US Federal Reserve may maintain high interest rates, potentially slowing economic growth and reducing oil demand. Despite eased price pressures in April, the Fed has not signalled a rate cut, suggesting a longer timeline to achieve its inflation goals. Concerns about slow demand growth in China and rising oil inventories in developed economies have also weighed on prices.

Geopolitical Developments: Gains in oil prices are also tempered by hopes for a ceasefire in Gaza, following the unveiling of a three-phase plan by the U.S. last week. Israeli Prime Minister Benjamin Netanyahu’s administration accepted US President Joe Biden’s proposal for a Gaza ceasefire on Sunday. Investors are monitoring these geopolitical tensions closely, as escalating risks could potentially drive-up crude oil prices.

Upcoming Data: Markets are anticipating a busy week full of economic data releases. The main event will be the US Employment Report on Friday, which traders will scrutinize for clues about the state of the US economy.

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