The oil price slides by more than 1% in the exchanges on Tuesday 4 June. Brent and WTI prices are both falling, following the crash of the session at the beginning of the week.
Crude oil extended losses from its lowest level in nearly four months after the OPEC+ plan to return barrels to the market earlier than expected has raised concerns about oversupply. In detail, at around 11.00 on 4 June, Brent futures were trading at around 77 dollars a barrel, with a decline of 1.50%. WTI loses approximately 1.70% at a price of 72 dollars a barrel.
The August Brent contract fell 3.4% on Monday. West Texas Intermediate was under $74. The cartel is expected to begin rolling back production cuts as early as October, despite lingering concerns about the demand perspectives and the robust offering from outside the group.
US data, expectations on China’s recovery and uncertainties over geopolitical tensions continue to put pressure on the price of oil, a special commodity among raw materials.
Why does the price of oil extend losses?
The balance between supply and demand for crude oil worldwide appears increasingly unbalanced, with supplies now appearing to abound amidst the uncertainty of the recovery in consumption.
Oil prices have been on a downward trend since early April as i geopolitical risks have decreased and demand has shown signs of weakness, leading some refineries to cut operating rates.
Some market watchers also expected OPEC+ to extend cuts until the end of the year, and reaction to the deal (to withdraw some cuts in the fall) was mixed, including doubts about the group’s ability to increase production of faced with a growing rival offer. Key members of the alliance have recently exceeded their assigned quotas.
The resolution of the cuts “will leave the market in a small surplus next year”, said Warren Patterson, head of commodity strategy for ING Groep NV in Singapore. However, he added, OPEC+ has made it clear that the return of barrels may be suspended if market conditions do not allow for additional supply.
“Oil prices have faced a double whammy lately, with OPEC+ set to begin easing some production cuts starting in October 2024, while demand conditions have not been well supported with weaker-than-expected US manufacturing activity”strategist Yeap Jun Rong pointed out.
U.S. manufacturing activity slowed for a second straight month in May, with construction spending unexpectedly falling for a second month in April due to lower nonresidential activity. This data could translate into a weaker demand for oil and fuel.
In general, the price of oil remains influenced by the fragile economic outlook of China, a major consumer, and by uncertainties about the pace of interest rate cuts in the main industrialized economies.
