Oil up as OPEC+ output cut decision weighs on market sentiment

By Sibel Morrow

ANKARA (AA) - Oil prices continued their rally on Tuesday as investors weighed the potential consequences of OPEC+'s decision to increase production cuts as of May, with experts expressing economic concerns.

International benchmark Brent crude traded at $85.84 per barrel at 10.19 a.m. local time (0719 GMT), a 1.07% increase from the closing price of $84.93 a barrel in the previous trading session.

At the same time, American benchmark West Texas Intermediate (WTI) traded at $81 per barrel, a 0.72% rise after the previous session closed at $80.42 a barrel.

Price upticks came after the Organization of Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, confirmed on Monday their plan to continue oil output cuts of 2 million barrels per day (bpd) until the end of the year, with additional voluntary production cuts of around 1.66 million bpd starting in May.

Saudi Arabia led the way with 500,000 bpd of cuts, followed by Iraq with 211,000 bpd, the UAE with 144,000 bpd, Kuwait with 128,000 bpd, Kazakhstan with 78,000 bpd, Algeria with 48,000 bpd, Oman with 40,000 bpd and Gabon with 8,000 bpd.

Russia also announced that it would extend the existing 500,000 bpd of output cuts until the end of the year.

Labeling the decision as a "precautionary measure aimed at supporting the stability of the oil market," the group said the total production cut would reach 3.6 million bpd.

Russian Deputy Prime Minister Aleksandr Novak said on Monday that more countries out of the OPEC+ group of 23 countries in total could decide to voluntarily reduce their oil production if necessary.

Speaking to reporters after the OPEC+ output cut decision, US Treasury Secretary Janet Yellen said the OPEC+ decision was an "unconstructive act," which could hurt US efforts to lower inflation.

"I think it’s a regrettable action that OPEC decided to take. I’m not sure yet just what the price impact will be, I think we need to wait a little longer for, you know, to really assess that," Yellen commented.

Federal Reserve Bank of St. Louis President James Bullard also said the decision was unexpected and pointed to possible oil price increases.

Meanwhile, bearish economic data from the US and Europe limited further price rises.

According to a report by the Institute for Supply Management (ISM) on Monday, the US manufacturing sector contracted in March for the fifth consecutive month.

In the UK, manufacturing activity contracted for the eighth consecutive month in March.

China also reported a decrease in the manufacturing sector's purchasing managers index (PMI) from an eight-month high in February, adding to the demand concerns.