Oil prices experienced a significant drop of more than $1 on Tuesday due to doubts surrounding an Opec+ decision to increase supply later in the year, despite a weak demand in the global market. Brent crude futures decreased by $1.11, or 1.4 percent, reaching $77.25 per barrel, falling below $80 for the first time since February. The price dropped even further on Tuesday, reaching $76.76, just under $2 away from the lowest point this year in January. US West Texas Intermediate crude futures also saw a decline of $1.09, or 1.5 percent, dropping to $73.13, close to a four-month low.
The decision by Opec+ to extend most of its oil output cuts into 2025 while allowing voluntary cuts from eight members to gradually unwind starting in October has led to concerns about oversupply in the oil market. This comes at a time when global economic activity is being hampered by high interest rates, with signals from major economies like the US, China, and Europe suggesting a weaker demand for oil for the rest of the year. Additionally, supply from non-Opec producers like the US is also on the rise. The negative impact of economic weakness on oil prices is expected to continue, further emphasizing the uncertain outlook for the market.
Market analyst Tamas Varga of oil broker PVM expressed disappointment at the market’s reaction to the Opec+ decision, which benefits consumers with lower prices but poses challenges for oil producers. The sluggish economic indicators and uncertainties surrounding demand for oil have contributed to the pessimistic sentiment in the market. With the belief that “bad news is bad news,” any further evidence of economic weakness is likely to push oil prices lower, according to IG market strategist Yeap Jun Rong. The upcoming release of inventory and product supplied data by the US government on Wednesday will provide insight into the current state of the oil market.
The product supplied data, which serves as a proxy for demand, will reveal the levels of gasoline consumption during the Memorial Day weekend, marking the beginning of the US driving season. The anticipation of this data, along with the ongoing concerns about oversupply and weak demand, continues to weigh on oil prices. The market remains sensitive to any developments that could further impact the supply and demand dynamics in the oil sector. As uncertainties persist regarding the future trajectory of oil prices, market participants are closely monitoring economic indicators and geopolitical factors that could influence the market’s direction in the coming months.
