Brent Oil Slides Despite OPEC+ CutsOPEC and allies including Russia, have been implementing a series of supply reductions since late-2022, which have helped support oil prices and on Sunday they agreed to prolong those curbs . Around 3.66 million barrels (mbpd) of cuts that were due to expire at the end of the year were rolled over into 2025. The most recent tranche of 2.2 mbpd that would expire at the end of the month was extended into Q3 and will be phased of gradually after that. The decision keeps current total reduction cuts at nearly 5.9 mbpd and almost 6% of global output.
On the other hand, members will start tapering some of those curbs over a 12-month period starting in the fourth quarter and the detailed plan could hinder their ability to keep output lower, if such need arises. Furthermore, the group sidestepped the contentious issue of capacity, while compliance has generally been loose in the past.
Brent oil slumps following the decision, as output will start to go up from October, just as non-OPEC countries like the US keep pumping oil. At the same time, demand growth is expected to decelerate sharply this year. Optimism for Middle East ceasefire, along with poor China PMIs, also contributed. UKOil is now exposed to this year’s lows (74.76), although breaching those of 2023 (70.09) is a much harder task.
However, the deep output cuts by OPEC+ will lead to tighter market at least in the near term and this can continue to support oil prices. Furthermore, central banks are moving towards less restrictive monetary policies, which can also help. On the technical side, the RSI points to extremely oversold conditions that can contain the fall and give UKOil the opportunity to rebound. A return above the EMA200 (blackline) that would pause the bearish bias would need strong catalyst though and the upside is unfriendly.
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