Oil prices fall after prior gains driven by OPEC+ move
Oil prices slipped on Monday, paring strong gains made in the previous session that was driven by the decision by OPEC+ to gradually ease some of its production cuts between May and July.
Brent crude futures for June fell 96 cents, or 1.5%, to $63.90 a barrel by 0615 GMT while U.S. West Texas Intermediate crude for May was at $60.56 a barrel, down 89 cents, or 1.5%.
Both contracts settled up more than $2 a barrel on Thursday as investors viewed the OPEC+ decision as an affirmation of demand-led recovery, and optimism was boosted by U.S. President Joe Biden’s $2 trillion infrastructure spending plan.
Markets were closed on Friday because of the Easter holiday.
The Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC+, agreed to ease production curbs by 350,000 barrels per day (bpd) in May, another 350,000 bpd in June and further 400,000 bpd or so in July.
The decision came after the new U.S. administration called on Saudi Arabia, the world’s top oil exporter, to keep energy affordable for consumers despite demand concerns as parts of Europe remained under lockdown while Japan could expand emergency measures as needed to contain a new wave of coronavirus infections.
Under Thursday’s agreement, OPEC+ cuts would be just above 6.5 million bpd from May, compared with slightly below 7 million bpd in April.
In addition, Saudi Arabia said it was phasing out its extra voluntary cuts by July, a move that will add 1 million bpd. Following that, Saudi Aramco raised official selling prices (OSPs) for May to Asia on Sunday.
“The raised output was followed by an increase in the OSP, which I think in tandem shows the confidence the bloc has in demand recovery,” Singapore-based OCBC economist Howie Lee said.
Goldman Sachs analysts said the decision pointed to a cautious and orderly ramp-up from OPEC+, allowing for a tight oil market. The bank expects a large rebound in oil demand this summer that will require an additional 2 million bpd of OPEC+ production from July to October.
This week, investors are focused on indirect talks in Vienna between Iran and the United States as part of broader negotiations to revive the 2015 nuclear deal between Tehran and global powers.
Ahead of the talks, Iran’s foreign ministry said it wanted the United States to lift all sanctions and rejected any “step-by-step” easing of restrictions.
Eurasia analyst Henry Rome said he expected U.S. sanctions, including restrictions on the sale of Iranian oil, to be lifted only after these talks are completed and Iran returns to compliance.
Iran has already ramped up exports to world’s largest crude importer China to about 1 million bpd in March despite sanctions, Reuters reported last month.
ING analysts said global oil inventories are expected to fall even as Iranian supplies are assumed to reach 3 million bpd in fourth quarter.