The global benchmark Brent crude oil price climbed above $78 per barrel on Tuesday,following Russia’s announcement that OPEC+ is prepared to deepen oil output cuts in the first quarter of 2023.
Brent crude futures climbed 71 cents, or 0.9 per cent, to reach $78.74 a barrel, while U.S. West Texas Intermediate (WTI) crude futures gained 69 cents, or 0.9 per cent, to $73.73 a barrel.
In an interview on Tuesday, Alexander Novak, Russian deputy prime minister, stated that OPEC+ is willing to take further steps to remove “speculation and volatility” from the oil market if the current production cuts prove to be inadequate.
Oil prices fell on Monday as concerns arose that the existing cuts by OPEC+ would not be sufficient to boost prices. The Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed last week to cut output by about 2.2 million barrels per day (bpd) in the first quarter of 2024.
However, analysts have pointed out that up to 1.3 million bpd of those cuts would simply be an extension of existing voluntary curbs by Saudi Arabia and Russia. Novak’s comments suggest that OPEC+ may consider even more aggressive production cuts if market conditions warrant it. The move is likely intended to support oil prices, which have come under pressure from a global economic slowdown and fears of recession.
According to FGE analysts, the announced cuts fell short of the 1 million bpd reduction that was widely anticipated, and the actual cuts are likely to be closer to 500,000 bpd compared to the fourth quarter. They pointed out that several countries in OPEC+ have been unable to meet their existing production targets and that these countries may have been exempted from making deeper cuts.
Apart from the announced OPEC+ cuts, the resumption of fighting in the Israeli-Hamas conflict and attacks on three commercial vessels in the southern Red Sea also helped lift oil prices, as the incidents sparked concerns about supply disruptions. Moreover, the possibility of increased demand was highlighted by comments from European Central Bank board member Isabel Schnabel, who told Reuters that the ECB could consider pausing interest rate hikes following a “remarkable” decline in inflation.