Oil Futures Fall Despite OPEC+ Extended Cuts, USD Softness

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated losses during the afternoon session Monday, sending international crude benchmark below $83 bbl despite OPEC+ extending voluntary production cuts of 2.2 million bpd into the second quarter and Russia's deepening of its current output and export quota, ensuring continued destocking of global oil inventories into the seasonally stronger months for oil consumption.

Monday's lower settlements in the oil complex also follow a retreat in the U.S. dollar index as investors reassessed prospects of near-term cuts to the federal funds rate.

On the session, the U.S. dollar fell 0.02% against a basket of foreign currencies to settle at 103.778 although failed to lend price support for the front-month West Texas Intermediate contract. WTI April futures on NYMEX retreated $1.23 to settle at $78.74 bbl, reversing lower from Friday's $80.85 four-month high on the spot continuous chart. International crude benchmark Brent for April delivery declined $0.75 for a $82.80 bbl settlement. NYMEX April RBOB futures fell back $0.0287 to $2.5857 gallon after gapping $0.2632 higher on the spot continuous chart following the March contract's expiration Thursday (2/29), reflecting the transition to stricter fuel volatility specifications. New front-month April ULSD futures on NYMEX retreated $0.0570 to $2.6472 gallon.

OPEC+ on Sunday announced the 2.2 million bpd in voluntary cuts in place since November 2023 would be extended until the end of the second quarter. The lion's share of those curbs is being shouldered by Saudi Arabia -- the de-facto leader of the 22-member coalition, which agreed to maintain an oil output of 9 million bpd for the reviewed period. Saudi spare capacity is currently estimated at 3 million bpd.

Russia, the second largest oil producer within the coalition, stated that it will voluntarily cut its production and export supplies by an additional 471,000 bpd through the end of June. The reduction comes atop a 500,000-bpd supply cut previously announced in April 2023, which extends until the end of December 2024. It must be noted that the export cut will be made from the average levels for the May and June of 2023 period, which saw record-high exports volumes out of Russia.

Key producers Iraq and United Arab Emirates will also extend their voluntary production cuts of 220,000 bpd and 163,000 bpd, respectively, until the end of the second quarter.

The announcement was widely expected by the markets and will likely lead to a widening supply deficit in the global oil market. An OPEC+ statement also noted that these voluntary cuts will be returned to the market gradually subject to market conditions.

In broader markets, equities on Wall Street finished Monday's session modestly lower as investors continued to digest a mixed bag of U.S. macroeconomic data released on Friday (3/1). U.S. manufacturing index, published by the Institute of Supply Management, showed business activity across industrial sectors of the economy slowed more than expected in February. Domestic manufacturing activity, which closely corresponds with interest rates, contracted for each of the last 16 months, and at a faster rate compared with the December-January period.

Interestingly, the Employment Index registered 45.9%, down 1.2% from January's 47.1% figure, meaning labor market conditions worsened last month. Readings below 50 represent contraction. Concerns about the labor market were front and center on consumers' minds at the start of the year, with a pair of macroeconomic reports revealing developing softness in consumer sentiment.

"Assessments of the present conditions weakened in February, as consumers' views of both business conditions and the employment situation became less favorable. Furthermore, consumers' assessments of their personal financial situation also weakened," the Conference Board said last week.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges