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Oil Prices Rise as OPEC+ Maintains Output Cuts

Early trading on Friday saw a surge in oil prices following OPEC+’s decision to maintain its current oil output policy, offsetting losses incurred in the previous session due to unverified ceasefire reports between Israel and Hamas.

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Brent crude futures climbed 50 cents, or 0.6%, to reach $79.20 a barrel at 0155 GMT, while U.S. West Texas Intermediate crude futures increased by 40 cents, or 0.5%, to $74.22 a barrel.

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The decline witnessed on Thursday, where both contracts settled more than 2% lower, was attributed to the unconfirmed ceasefire reports between Israel and Hamas. However, a Qatari official clarified that there was no ceasefire and that Hamas had positively received a ceasefire proposal earlier in the week.

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In the midst of regional tensions, ongoing attacks by Yemen’s Houthi forces on vessels in the Red Sea continue to disrupt global trade, heightening geopolitical tensions and shipping concerns. The Iran-aligned group reported on Thursday that their naval forces had targeted a British merchant vessel in the Red Sea.

On the same day, two sources within OPEC+ confirmed that the group had opted to maintain its oil output policy, with a decision regarding the extension of voluntary oil production cuts scheduled for March. OPEC+ had initially announced output cuts of 2.2 million barrels per day (bpd) for the first quarter, as outlined in November.

ANZ Research analysts highlighted in a note on Friday that these production cuts are expected to uphold supply tightness in the first quarter, particularly as non-OPEC production increases normalize and U.S. output growth slows down to 300,000 barrels per day (bpd) from last year’s 800,000 bpd.

Additionally, oil prices found support from the U.S. Federal Reserve’s decision to maintain the benchmark overnight interest rate within the 5.25-5.50% range. Chair Jerome Powell’s comments indicating that interest rates had peaked and were likely to decrease in the coming months also contributed to the upward trajectory of oil prices. Lower interest rates are expected to reduce consumer borrowing costs, potentially boosting economic growth and oil demand.

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