Oil prices edge up as market awaits OPEC+ decision

Mixed demand indicators from U.S. and China keep markets cautious
Oil prices edge up as market awaits OPEC+ decision
Expectations of OPEC+ continuing production cuts into the second quarter of 2024 are impacting sentiment

Oil prices saw an increase on Friday, closing the week with gains as anticipation builds around the forthcoming decision from the Organization of Petroleum Exporting Countries and allies (OPEC+) regarding supply agreements for the second quarter. Despite differing demand indicators from key consumers like the U.S. and China, the market remains cautiously optimistic about future trends.

By 6:07 GMT, Brent crude futures increased 0.42 percent to $82.25 per barrel. Meanwhile, West Texas Intermediate crude (WTI) futures recorded a 0.33 percent, to $78.52 a barrel.

WTI is on track for at least a 2.5 percent increase this week. Meanwhile, Brent crude futures are holding near last week’s settlement price. Brent has hovered comfortably above the $80 mark for three weeks.

Market insight

Brent crude prices have been relatively stable, with recent strength pushing it to the $83 per barrel mark. Despite this, the concerns of oversupply continue to impact oil prices. Expectations of OPEC+ continuing production cuts into the second quarter of 2024 are impacting sentiment, with soft demand anticipated to linger. However, there’s a notable widening of timespreads for Brent futures contracts, indicating market optimism for tightening in the months ahead.

OPEC+ decision anticipation

The decision on extending production cuts is expected in the first week of March, with individual countries likely to announce their positions. A recent Reuters survey revealed that OPEC pumped 26.42 million barrels per day this month, up from 90,000 barrels per day in January. Moreover, Libyan oil output increased by 150,000 barrels per day month-on-month.

The increasing possibility of OPEC+ continuing their supply cuts beyond the first quarter will likely push oil prices above the $80 per barrel level.

Impact of economic indicators

Supporting oil prices, the U.S. personal consumption expenditures (PCE) index revealed that January’s inflation was in line with economists’ expectations. This keeps the possibility of a June interest rate cut on the table, which could stimulate consumer spending on fuel, thus supporting oil prices.

However, mixed purchasing managers’ index (PMI) data from China, the world’s largest oil consumer, tempered gains in oil prices. While China’s manufacturing activity continued to contract for the fifth consecutive month, the non-manufacturing PMI rose to 51.4 from 50.7 in January, its highest level since September.

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Future projections

Analysts forecast sluggish demand for the second quarter of 2024, which could decrease oil prices. However, they anticipate a rebound in the second half of 2024, driven by the potential for an interest rate cut in the U.S. This could redirect fund flows toward riskier assets, including oil.

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