Oil Steadies After Partial OPEC+ Production Cut Extension

VIENNA (DTN) -– West Texas Intermediate futures closest to expiration on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange steadied Monday morning after OPEC+ members who have been shouldering some 2.2 million bpd in voluntary additional production cuts on Sunday announced a plan to unwind them starting in October.

In a move largely expected by the market, OPEC+ at their Vienna meeting on Sunday agreed to extend most production curbs into the second half of the year. While the original 3.66 million bpd cut was extended by one year until December 2025, the additional 2.2 million bpd voluntary output curtailment by eight members will only be carried into the third quarter, with plans to subsequently gradually raise production until September 2025. This perhaps premature unwinding may be interpreted less as strong demand growth anticipations and more as a concession to overproducers like Iraq and Kazakhstan, and to those with solid production growth plans like the UEA.

Oil demand growth has so far this year disappointed, as a manufacturing recession in the Eurozone and the U.S. and a slower-than-expected industrial recovery in China weighed on diesel demand. As a European turnaround appears nowhere in sight -- S&P Global this morning released a downward revision to its Eurozone Manufacturing Purchasing Managers' Index for May which at 47.3 remains deep in contraction territory – OPEC placed its bets on China to be a main demand growth driver this year. While China's official manufacturing PMI in May slid back below 50, the Caixin manufacturing PMI for May released overnight showed the highest reading in two years at 51.7. In the U.S., macroeconomic indicators have over the past month hinted at a stalling manufacturing recovery, and sticky inflation has dashed hopes of early interest rate cuts despite lower-than-expected economic growth. Data for May will be closely watched, with the Institute of Supply Management's Manufacturing PMI scheduled for 10:00 a.m. EDT release today.

Near 7:30 a.m. EDT, WTI futures for July delivery were unchanged, trading near $77.00 bbl, and Brent for July delivery hovered around $81.17 bbl, up $0.06. RBOB and ULSD for June delivery were up some 0.2ct, trading near $2.4187 and $2.3862, respectively.

Karim Bastati can be reached at karim.bastati@dtn.com