LONDON: Oil prices drifted lower on Monday as traders indulged in some profit taking a day after the widely expected extension of voluntary output cuts through the middle of the year by the OPEC+ producer group.

Brent futures were down 41 cents to $83.14 a barrel at 1218 GMT after rising 2.4% last week. U.S. West Texas Intermediate (WTI) fell 52 cents to $79.45 a barrel following a 4.6% gain last week.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) are extending their voluntary oil output cuts of 2.2 million barrels per day (bpd) into the second quarter to cushion the market amid global economic concerns and rising output outside the group.

Although Russia’s announcement to cut its oil output and exports by an additional 471,000 bpd in the second quarter surprised some analysts.

Russia’s additional cut is closely correlated with a 400,000 bpd drop in the country’s refinery runs, largely stemming from Ukrainian drone strikes on refining assets across Russia, lead crude oil analyst at Kpler Viktor Katona said.

OPEC+ members extend oil output cuts to second quarter

While there has been little price movement because the OPEC+ decision had been expected, low-sulphur, or sweet, crude markets are tightening, widening Brent spreads, traders said.

The premium of the first-month Brent crude contract to the six-month contract reached $4.56 a barrel. This structure, called backwardation, indicates a perception of tight prompt supply.

This widening Brent backwardation implies that dips in the market ought to be short-lived, Tamas Varga of oil broker PVM told Reuters.

The OPEC+ cuts would lead to a lower production from the group at 34.6 million bpd in the second quarter against an earlier forecast that output could rise above 36 million bpd in May as producers unwind supply cuts, Jorge Leon, a senior vice president at consultancy Rystad Energy said.

“This new move by OPEC+ clearly shows strong unity within the group, something that was put into question after the November ministerial meeting, which saw Angola leaving OPEC,” he said.

“It also shows robust determination to defend a price floor above $80 per barrel in the second quarter.”

Rising geopolitical tensions due to the Israel-Hamas conflict and Houthi attacks on Red Sea shipping have supported oil prices in 2024, although concern about economic growth has weighed.

Yemen’s Iran-backed Houthis vowed on Sunday to continue targeting British ships in the Gulf of Aden following the sinking of the Rubymar cargo ship.