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Crude oil prices are set to end the week with a modest gain on expectations that OPEC+ will extend its production cap deal, tightening supply further.

OPEC initially agreed to reduce combined supply by 2.2 million bpd over the first quarter of the year and meet in early March to decide whether it should extend the cuts for another quarter. Given the tight range that oil has been trading in amid multiple headwinds, the extension was virtually a certainty.

Some observers even expect OPEC+ to extend the cuts until the end of the year, which has lent support to prices on expectations that this would bring the oil market closer to a shortage.

"Expectations of a continuation of OPEC+ production cuts into Q224 is also weighing on sentiment as soft demand is expected to persist...However, time spreads for Brent futures contracts have widened. The move to stronger backwardation (market structure) will be supportive of a more bullish stance for prices as markets are pricing in tightening in the months ahead," BMI analysts said in a note this week, as quoted by Reuters.

"Tailwinds like tightening physical markets and headwinds such as Chinese growth concerns and higher rates in US," are keeping oil prices range-bound, Kotak Securities' head of commodity research, Ravindra Rao, told Bloomberg.

The publication noted that prompt time spreads for both Brent crude and West Texas Intermediate have been in backwardation for some time now, and the gap has been expanding, suggesting a perception of a market that is going to get tighter in the future.

While OPEC+ production policy leads in the tailwind department, when it comes to headwinds, it's Chinese demand that is top of everyone's mind. Earlier this month, Eurasia Group predicted that China's 2024 oil demand growth rate would be a lot more modest than last year's, at between 250,000 bpd and 350,000 bpd.

The motivation for this prediction was the state of China's construction and car sectors, which, according to Eurasia Group, were "exhausted".

By Irina Slav for

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Irina Slav

Irina is a writer for with over a decade of experience writing on the oil and gas industry. More

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