February 29, 2024

Oil inched higher as Saudi Arabia’s go-it-alone production cuts were offset by broader risk-off sentiment and traders waiting to see if cuts will materialize. 

West Texas Intermediate settled 41 cents above its Friday close, substantially giving back the almost 5% gained in the immediate wake of Saudi Arabia’s pledge to shave an extra 1 million barrels-a-day from its production in July. The country also hiked all of its official selling prices for deliveries in July. But traders are waiting to see if supply cuts materialize and an improvement in demand before making any big bets.

The muted reaction “is further evidence that crude traders do not fear OPEC+ production cuts as catalysts for sustained rallies,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “The cut does reduce downside risk but does not inspire confidence that demand is close to hitting optimistic 2H projections.”

The move left the kingdom potentially sacrificing further market share to stabilize prices. Against that, others in the group pledged to maintain existing cuts until the end of 2024, though Russia made no commitment to curb output further and the United Arab Emirates secured a higher production quota for next year. 

The OPEC+ deal came after a dispute with African members over how their cuts are measured, which delayed the start of the meeting. Next month’s additional cut could be extended, but the Saudis will keep the market “in suspense” about whether this will happen, Prince Abdulaziz said.

Prices:

  • WTI for July delivery rose 41 cents to settle at $72.15 a barrel.
  • Brent for August settlement gained 58 cents to settle at $76.71 a barrel.

Oil in New York tumbled 11% last month as demand concerns, especially in China, sapped confidence. Most market watchers expected OPEC+ to keep output unchanged, including Goldman Sachs Group Inc., whose analysts forecast major producers holding steady. The outcome was “moderately bullish,” the bank said after the gathering in Vienna.    

“Saudi Arabia would ideally want prices to be above $80 a barrel,” Vandana Hari, the founder of Vanda Insights in Singapore, said on Bloomberg television, referring to Brent. But if the health of the global economy falters, the short-sellers “will be back in no time,” she said.

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