Oil holds onto gains after Opec+, growth worries

Oil prices remained stable on Wednesday, as the market regained its composure after the announcement of production cuts by Opec+ members, with fears about global economic growth, and thus demand, resurfacing.

Around 09:30 GMT (11:30 in Paris), the barrel of Brent North Sea for delivery in June lost 0.07% to 84.88 dollars. Its U.S. equivalent, a barrel of West Texas Intermediate (WTI) for May delivery, slipped 0.19% to $80.56. “After the Opec+ announcement over the weekend, calm has returned to the market,” argues Tamas Varga, analyst for PVM Energy.

Investor attention is currently focused on “concerns about the strength of economic growth, as manufacturing activity in China, the eurozone and the U.S. slowed last month,” the analyst continued. “The dilemma is whether the gloomy economic outlook or the reduction … ofOpec production+ will dominate investors’ thinking” in the coming days, he points out.

In a surprise move, eight members of the Organization of the Petroleum Exporting Countries and their allies (Opec+) announced on Sunday that they would cut their production by more than one million barrels per day, sending crude prices soaring earlier this week. For Mr. Varga, the immediate upside potential for prices is now limited, “the surprise effect (being) built into prices”. “The next bullish impulse will come when these cuts are actually implemented” in May.

Oanda analyst Craig Erlam notes that Brent crude oil is likely to remain above $80 a barrel, as the group of exporting countries has shown its willingness to keep the price at that level. “Not only will it reduce production, but it will do so without warning” if prices fall sharply, he says.

Also on the supply side, Baghdad and the local authorities of Iraqi Kurdistan signed an agreement on Tuesday allowing the resumption of oil exports from the autonomous region to Turkey, which were interrupted ten days ago. The market is also awaiting the release of the U.S. commercial inventory report from the U.S. Energy Information Agency (EIA) for the week ended March 31.

The industry trade federation, the American Petroleum Institute (API), estimated Tuesday that crude oil inventories fell by 4.3 million barrels last week, and gasoline inventories also fell by 4 million barrels. However, API data is considered less reliable than that of the U.S. Energy Information Agency (EIA). Analysts expect commercial crude reserves to fall by 1.7 million barrels and gasoline reserves by 2 million barrels, according to the median of a consensus compiled by Bloomberg.