The Brent crude oil price drops despite OPEC cut extension
At the beginning of June, the Organization of Petroleum Exporting Countries (OPEC) announced that it was extending output cuts into 2025. The output cuts have been in place since early 2023 and have, at times, caused supply concerns within the global market.
The extension concerns two separate cuts, from April and November 2023. The April cut resulted in 1.65m barrels per day (bpd) being withheld from the market, while the November cut was 2.2m bpd. The latter cut is being extended until the end of Q3 2024 but is likely to continue into 2025. OPEC’s actions have added bullish sentiment to the market and have been a leading price driver over the last year.
However, news of the output cut extension did little to bolster the Brent crude price. In May 2024, for instance, the monthly average price fell 6.7% month-on-month (m-o-m). The decline can be chiefly attributed to tensions in the Middle East, which is now the primary price driver in the market.
With news of a potential ceasefire and US President Biden’s peace plan for the Israel-Palestine conflict, market participants lowered expectations of supply disruption. Any protracted conflict, however, or the major involvement of a country such as Iran, could result in elevated crude oil price levels, according to market sources.
Interest rates fall in the Eurozone amid decelerating inflation
At the monetary policy meeting on 6th June, the European Central Bank (ECB) opted to cut interest rates by 25 basis points (bps), or 0.25%, to 3.75%. This was the first interest rate cut in five years.
The decision comes amid slowing inflation. In April, for instance, annualised Eurozone inflation was 2.4%, having hovered around 10% in summer 2022. However, ECB President Christine Lagarde cautioned that the cut did not mark the beginning of a “dialling back phase” of sustained interest rate cuts, adding that the central bank would be monitoring economic data in the coming months.
Market sources anticipate two further cuts in 2024, more than forecast in the US where inflation has been stickier than in the Eurozone. In certain commodity markets, the news of rate cuts has been greeted with optimism and relief, particularly in the plastics market, where demand has been sluggish for several months due to tight monetary policy.
