Oil prices fall slightly as investors assess prolonged OPEC+ supply cuts

Oil prices were down slightly on Monday as investors digested the complex agreement negotiated by the OPEC+ producer group to extend several levels of production cuts, many of them until 2025.

Brent crude futures for August delivery were down 42 cents at $80.69 a barrel by 1318 GMT. U.S. West Texas Intermediate (WTI) crude futures for July delivery were down 45 cents at $76.54.

Some analysts described the group's decision, agreed on Sunday, as marginally bearish for oil prices.

The Organization of the Petroleum Exporting Countries and its allies led by Russia, collectively known as OPEC+, are currently cutting production by a total of 5.86 million barrels per day (bpd), equivalent to approximately 5.7% of global demand.

The group agreed to extend most of its cuts well into 2025 to support the market in the face of weaker-than-expected demand growth, prolonged high interest rates in major Western economies, concerns about slowing demand growth in China, the top oil importer, and rising non-OPEC production.

The agreement includes extending 3.66 million bpd of cuts that were due to expire this year until the end of 2025.

It also extends 2.2 million bpd of voluntary cuts that were due to expire at the end of this month but will now remain in place until the end of September before being phased out by September 2025.

"Clearly, the challenge for the group will be to maintain or reduce if demand does not prove to be as robust and we believe its strong cohesion should allow for more flexibility, if needed," said Christyan Malek, an analyst at J.P. Morgan.

Given that it was always planned that the 2.2 million bpd of additional cuts would be phased out gradually, Sunday's decision was slightly disappointing, some analysts said.

"The communication of a surprisingly detailed predetermined plan to unwind additional cuts makes it more difficult to maintain low production if the market turns out to be softer than OPEC's bullish expectations," Goldman Sachs analysts said.

These eight core members account for only about 30% of global oil production, making it difficult for the group to convince markets that it is able to support prices when the proportion of production over which it has effective control is limited, said Callum Macpherson, head of commodities at Investec.

"Even achieving this (agreement) has come at the cost of agreeing to production increases in 2025 in addition to its plan to eliminate voluntary cuts. It is unclear whether the additional supply will find a home next year," he said.

The nearest month contract for Brent, for example, has fallen a few dollars since it was first reported that such an OPEC+ deal was being negotiated last week.

Collaboration: Grupo Auge | Reuters (International).