Oil Down As Demand Fears Stoked By OPEC Cut Extensions

But one analyst thinks the market is still focused on the Israel/Hamas conflict: File Image/Pixabay

An extension of output cuts from the Organization of the Petroleum Exporting Countries (OPEC) that had been keenly anticipated by crude traders proved to be no match on Monday for demand concerns, resulting in modest losses for two key benchmarks.

Brent settled down 75 cents to $82.80 per barrel, while West Texas Intermediate settled down $1.24 to $78.74 per barrel.

Analysts tried to make sense of Monday's trading activity, with Jorge Leon, senior vice president at Rystad Energy, writing in a note, "Such a move by OPEC+ might also be seen as a sign that demand prospects in the second quarter are less optimistic than the group thought in November last year."

Walt Chancellor, energy strategist at Macquarie, told clients, "As market expectations for a rollover had grown more apparent recently, we believe the extension may have been increasingly priced in."

Vandana Hari, founder of Vanda Insights, postulated that traders were more motivated by the Israel/Hamas conflict than OPEC, even though no new developments on that front were evident on Monday: "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."

Looking forward, Fawad Razaqzada, a market analyst at City Index and Forex.com, said, "Traders are now faced with the dilemma of whether to dive into oil following OPEC's decision or adopt a wait-and-see approach to gauge whether the bulls will maintain control at the outset of this week."

For the record, OPEC and its allies stated they would extend their crude production cuts of 2.2 million barrels per day (bpd) into the second quarter to support prices and counter the effects of rising output elsewhere; Saudi Arabia vowed to extend its cut of 1 million bpd through the end of June.

Russia also said it would deepen cuts by over 470,000 bpd in the second quarter while at the same time easing curbs on exports (the former Soviet Union already has a 500,000-bpd cut quote for production and exports).