The impact of supply cuts extension by OPEC and friends

Brent crude oil prices were only marginally up in Wednesday morning trade. Clearly, prices have failed to recover from the 4% drop seen on Tuesday, when the Organization of the Petroleum Exporting Countries (OPEC) and its allies (together known as OPEC+) decided to extend their supply cuts. Collectively, OPEC+ will curb production by 1.2 million barrels per day (mb/d) for nine months until 31 March.

Shouldn’t lower supply boost prices? As it turns out, the markets were largely anticipating this outcome. Moreover, investors seem worried about the muted demand outlook this time around. “Although the OPEC meeting took a strong stance to keep markets balanced and push prices higher, demand concerns are playing a larger role this time and keeping prices from rising sharply,” said an analyst who did not wish to be named.