U.S. crude oil fell for the fifth straight session Tuesday to settle at its lowest level since early February, adding to the previous day’s losses brought on by the OPEC+ decision to start unwinding some voluntary additional production cuts in October.
The planned unwind has added to jitters about oversupply in an environment where traders are already spooked about high interest rates weighing on global economic activity.
“The price weakness on the oil market suggests that market participants doubt that OPEC+ will be able to gradually reduce its voluntary production cuts without risking oversupply,” and OPEC is “apparently counting on a significant revival in oil demand,” Commerzbank’s Carsten Fritsch said, according to Marketwatch.
“It’s a bit of a severe reaction, [but] it doesn’t take much to tip this market into relative oversupply,” John Kilduff of Again Capital told Dow Jones, also citing concerns that “the fissures in the cartel are real and there are worries about it holding together.”
“The technical picture in oil has turned very bearish,” FxPro analyst Alex Kuptsikevich said, according to Dow Jones. “OPEC+ agreed to an impressive extension of low production quotas, but markets are paying more attention to the short-term supply-demand balance and viewed the move as underwhelming.”
“We believe the market got the wrong signal from OPEC, [as] OPEC failed to convince the market that their tapering of voluntary cuts was going to be data dependent,” Price Futures Group’s Phil Flynn said.
Front-month Nymex crude (CL1:COM) for July delivery closed -1.3% to $73.25/bbl, its lowest settlement value since February 5, and front-month August Brent crude (CO1:COM) closed -1% to $77.52/bbl, its worst settlement since February 2.
U.S. Nymex natural gas (NG1:COM) reversed the prior session’s gains, with the front-month July contract closing -6.1% to $2.586/MMBtu.
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Some analysts say President Biden may have received a timely election boost from OPEC’s production decision, which potentially keeps a lid on gasoline prices through the end of the year.
OPEC’s move “could keep gasoline out of the headlines through the summer,” Jim Lucier, managing director at Capital Alpha Partners, told Bloomberg. “They are opening the door for their OPEC partners to produce more, but trying to maintain enough discipline to avoid a price collapse.”
The OPEC policy shift also provides “a beneficial backdrop for U.S.-Saudi grand bargain negotiations,” RBC Capital’s Helima Croft said, according to Bloomberg. “The decision to provide taper forward guidance will likely please officials in Washington who consistently maintain that a moderate oil price will help build congressional support for a deal.”