Oil Steadies Near This Year’s High as OPEC+ Extends Output Cuts

(Bloomberg) -- Oil steadied near the highest level this year after OPEC+ extended its production cuts and as progress toward a cease-fire in Gaza stalled.

Brent futures traded near $84 a barrel after rising 2% in the previous session. US benchmark West Texas Intermediate was close to $80, having breached the psychological level on Friday for the first time since November. The Organization of the Petroleum Exporting Countries and its allies extended their 2 million-barrel-a-day reduction through the end of June.

Traders and analysts had widely expected the move by OPEC+, seeing it as necessary to offset a seasonal lull in demand and soaring output from other producers. The latest cuts will be “returned gradually subject to market conditions,” OPEC’s Secretariat said in a statement.

Crude has been on a slow-but-steady ascent this year, as widening timespreads signaled tighter physical conditions and attacks on ships in the Red Sea added to transport costs. Still, delayed expectations for when the Federal Reserve will start to lower interest rates, strong production from outside OPEC+ and a shaky Chinese demand outlook have capped gains.

In the Middle East, progress toward a pause in the fighting in Gaza remains stalled even as Hamas sent a delegation to Cairo for talks. Israeli media said the militant group refused to provide information on the hostages it took during the Oct. 7 attack, and that discussions were breaking down.

“The OPEC+ rollover was baked in, it’s the Gaza crisis that prices are responding to,” said Vandana Hari, founder of Vanda Insights in Singapore. “As long as the cease-fire negotiations remain in a stalemate, crude is likely to either hover around current levels or come under further upward pressure.”

Oil’s rally this year has flushed hedge funds’ short positions out of the market. Money managers’ combined short bets against Brent and WTI are at the lowest since October, data from ICE Futures Europe and the US Commodity Futures Trading Commission show. Trading volumes have also been high, with nearly 20,000 lots traded on each benchmark by 8:30 a.m. in Singapore on Monday.

Investors will also look to China this week, with the government set to announce its 2024 growth target and outline its strategy for supporting the slowing economy at the National People’s Congress.

©2024 Bloomberg L.P.