OIL prices tumbled by US$3 a barrel on Monday (Jun 3) to their lowest in nearly four months, as investors worried that a complicated Opec+ output decision could lead to higher supplies later in the year even though demand growth has been slow.
Brent crude futures fell by US$2.75, or 3.4 per cent, to settle at US$78.36 a barrel, closing below US$80 for the first time since Feb 7. US West Texas Intermediate crude futures also closed at a near four-month low of US$74.22 a barrel, down by US$2.77 or 3.6 per cent from Friday.
Both contracts were down by US$3 a barrel in post-settlement trading.
Opec+ on Sunday agreed to extend most of its oil output cuts into 2025 but left room for voluntary cuts from eight members to be gradually unwound from October onward.
Analysts at Goldman Sachs said the outcome was negative for oil prices as the phasing out of voluntary cuts shows a strong desire by several Opec+ members to bring back output despite recent increases in global oil stocks.
“The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish Opec expectations,” Goldman Sachs analysts said.
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Other analysts also called the group’s decision incrementally bearish for oil prices in light of high interest rates and rising output from non-Opec producers such as the United States.
“Ultimately, a combination of factors has come into play,” independent oil analyst Gaurav Sharma said, highlighting disappointing economic indicators in the US and China.
“When Opec+ took the decision it did over the weekend, in a reasonably well-supplied crude market, traders factored in the macro picture alongside a dwindling risk premium (with talk of a ceasefire in Gaza) and went net short,” Sharma said.
An aide to the Israeli prime minister confirmed on Sunday that Israel had accepted a framework deal for winding down the Gaza war, although the Israeli side called it a flawed deal.
Signs of weakening demand growth have also weighed on oil prices in recent months, with data on US fuel consumption in focus.
The US government will release estimates of oil stocks and demand on Wednesday, which will show how much petrol was consumed around the Memorial Day weekend, the start to the US driving season.
“The hard numbers are that the market is well-supplied,” said John Kilduff, partner at Again Capital.
“If we do not get a spectacular number on Memorial Day in the US, that’s going to be game over,” Kilduff added.
US petrol futures fell more than 3 per cent on Monday to a more than three-month low of US$2.34 a gallon.
US efforts to replenish the country’s Strategic Petroleum Reserve (SPR) could provide some support for oil prices. The US is buying another three million barrels for the SPR at an average price of US$77.69 a barrel, the US Department of Energy said on Monday. REUTERS
