Oil prices experienced an early boost on Friday after the OPEC+ alliance decided to keep its oil output policy unchanged. However, despite the positive move, benchmark prices were on track for weekly losses due to unverified reports of a ceasefire between Israel and Hamas.
Brent crude futures rose by 0.5%, reaching $79.07 a barrel, while U.S. West Texas Intermediate crude futures gained 0.4%, standing at $74.12 a barrel as of 0415 GMT.
On Thursday, sources within OPEC+ confirmed that the group would maintain its existing oil output policy, with a decision on whether to extend voluntary oil production cuts into the first quarter expected in March. OPEC and its allies, led by Russia, had implemented output cuts of 2.2 million barrels per day (bpd) for the initial quarter, as announced in November.
Analysts from ANZ Research noted in a Friday report that these production cuts should contribute to a tightened supply in the first quarter. They anticipate a normalization of non-OPEC production increases, with U.S. output growth slowing to 300,000 bpd from the previous year’s 800,000 bpd.
Oil prices found additional support from the U.S. Federal Reserve’s decision to maintain the benchmark overnight interest rate within the 5.25%-5.50% range. Comments from Chair Jerome Powell, indicating that interest rates had peaked and would move lower in the coming months, also contributed to the positive sentiment. Lower interest rates have the potential to reduce consumer borrowing costs, stimulating economic growth and increasing oil demand.
However, oil prices were still set for weekly losses of around 5%, influenced by unverified reports of a ceasefire between Israel and Hamas. This led to a more than 2% drop in contracts on Thursday.
Priyanka Sachdeva, a senior market analyst at Phillip Nova, highlighted the impact of reports on progress towards an extended Israel-Hamas ceasefire, suggesting that these could alleviate current geopolitical stress, keeping oil investors cautious.
Furthermore, the continued uninterrupted passage of Russian oil tankers through the Red Sea, contrary to market expectations of significant disruptions to global oil supply flow, has also contributed to a sense of stability.
In the latest developments, the Iran-aligned Houthi militants claimed on Thursday that their naval forces targeted an unidentified British merchant vessel in the Red Sea, adding to concerns in an already tense global oil market.
As the market navigates geopolitical uncertainties and awaits further developments, oil prices remain influenced by a delicate balance of supply concerns, production cuts, and global geopolitical events.