Oil prices stabilize amid OPEC+ decision to delay output increase

Oil prices steadied as the latest decision by the OPEC+ alliance to postpone a production hike for another three months failed to ignite market optimism.

Brent crude hovered around $72 per barrel after closing 0.3% lower on Thursday, while West Texas Intermediate (WTI) climbed above $68.

The OPEC+ coalition delayed its planned output increase for the third time, opting for a modest hike in April. The alliance also decided on an 18-month schedule for gradual production increases, slower than previously outlined.

Market Dynamics: Optimism Meets Resistance

Since mid-October, crude has traded within a narrow range, with optimism stemming from geopolitical developments in the Middle East and Ukraine offset by concerns about an anticipated supply glut. Rising production from the Americas and lackluster Chinese demand are key drivers of the expected oversupply. This imbalance limits the alliance’s ability to scale up production that has been restricted since 2022.

“OPEC+ has sent a strong message that it remains committed to balancing the oil market,” analysts at Morgan Stanley, including Martijn Rats, noted in a report. They revised their price forecasts upward for Brent and WTI in the third and fourth quarters of 2024 to $70 and $66, respectively, reflecting expectations of a smaller surplus than previously estimated.

Impact of Delayed Production and UAE Agreement

According to Standard Chartered, the combination of postponed output increases, extended timelines for easing restrictions, and an agreement with the UAE to delay its baseline production target could cut OPEC+’s additional supply in 2024 by 61%.

“We believe the market has yet to fully price in the reduced oil volumes,” analysts Emily Ashford and Paul Horsnell from Standard Chartered wrote. They projected that the revised plan would result in a supply increase of 191.3 million barrels in 2025, a significant reduction from the previous estimate of 496.3 million barrels.

As OPEC+ continues to navigate a complex market environment, the alliance’s strategic moves signal a cautious approach to mitigating the risks of oversupply while stabilizing global oil prices. Whether these measures will sustain market equilibrium remains a pressing question for the year ahead.