Oil prices tumbled more than $2 a barrel on Monday to their lowest in nearly four months, as investors worried about the demand outlook and took a complicated OPEC+ output decision as a sign that members of the producer group were eager to export more crude.
Brent crude futures fell by $2.75, or 3.4 per cent, to settle at $78.36 a barrel, closing below $80 for the first time since Feb. 7. U.S. West Texas Intermediate crude futures also closed at a near four-month low of $74.22 a barrel, down by $2.77 or 3.6 per cent from Friday.
OPEC+ on Sunday agreed to extend most of its deep oil output cuts into 2025 but left room for voluntary cuts from eight members to be gradually unwound from October onward. The group also agreed to a new output target for the United Arab Emirates, which has been pushing for a higher quota.
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.
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 like the U.S.
“Ultimately, a combination of factors has come into play,” independent oil analyst Gaurav Sharma said, highlighting disappointing economic indicators in the United States and China.
“So, 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 being advanced by the United States 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 U.S. fuel consumption in focus.
The U.S. Energy Information Administration will release estimates of oil stocks and fuel demand on Wednesday, which will show how much gasoline was consumed around the Memorial Day weekend, the start to the U.S. 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 U.S., that’s going to be game over,” Kilduff added.
U.S. gasoline futures were down over 3 per cent on Monday to a more than three-month low of $2.34 a gallon.