Brent draws support from OPEC+ production cuts

The front-month ICE Brent contract has gained by $0.72/bbl on the day from Friday, to $78.62/bbl at 09.00 GMT.

PHOTO: Pump jack and flag of OPEC. Getty Images

Upward pressure:

OPEC+ production cuts of 1.16 million b/d takes effect from today. Last month, the group announced production cuts of 1.16 million b/d through 2023. These cuts are in addition to the 2 million b/d output cuts announced by the group last October, taking the total OPEC+ production reduction to 3.66 million b/d this year.

As OPEC+ members cut down production and Chinese oil demand recovers, the crude price is expected to gradually rise to nearly $90/bbl this year, a Reuters poll shows. The survey predicts that crude will average $87.12/bbl this year, up from the previous forecast of $86.49/bbl.

Downward pressure:

China’s official manufacturing purchasing managers index (PMI) declined to 49.2 in April from 51.9 in March, beating Reuters analyst prediction of 51.4 for the month. An unexpected drop in Chinese manufacturing data has raised concerns about China’s post-Covid 19 economic recovery. This has capped Brent gains.

The US Federal Reserve will hold a two-day Federal Open Market Committee (FOMC) meeting this week. Several market participants expect the central bank to increase interest rates by 25 basis points. Since March last year, the Fed has increased its interest rates by 475 basis points, moving from a near-zero level to the current 4.75-5% range, Reuters said.

Interest rate hikes typically push the US dollar up against other global currencies, rendering Brent and other commodities priced in dollars more expensive to some buyers.

By Nithin Chandran

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