Oil price slides to $77.25 a barrel despite pledges of output cuts

Crude oil fell more than $1 a barrel on the back of scepticism about an Opec+ decision to boost supply later this year

Some market watchers had expected Opec+ to extend cuts through to the end of the year, and reaction to Sunday’s deal was mixed. 

Crude oil prices fell more than $1 on scepticism about an Opec+ decision to boost supply later this year into a global market where demand has already shown signs of weakness.

Extending losses from a four-month low in the previous session, Brent crude futures were down at $77.25 a barrel and below the $80 price for the first time since February 7 after falling more than 3%.

At its lowest price in the session, Brent crude traded at $76.76 a barrel, less than $2 shy of this year’s nadir of $74.79 at the beginning of January.

The Organization of the Petroleum Exporting Countries and allies led by Russia, together known as Opec+, had agreed on Sunday to extend most of their oil output cuts into 2025 but left room for voluntary cuts from eight members to be unwound gradually, beginning in October. 

Tamas Varga of oil broker PVM said: 

The market reaction is depressing to anyone who produces oil and brings elevated joy for consumers. 

The planned October unwinding adds jitters about oversupply in an environment where traders are already spooked about high interest rates hampering global economic activity, with a steady flow of dim signals from major economies such as the US, China, and Europe suggesting that their appetite for oil may not be as healthy as hoped through the rest of the year.

On top of this, supply is rising from non-Opec producers such as the US. IG market strategist Yeap Jun Rong said: 

With the ‘bad news is bad news’ mantra in place, further evidence of economic weakness may lead oil prices lower. 

Some market watchers had expected Opec+ to extend cuts through to the end of the year, and reaction to Sunday’s deal was mixed, including doubts about whether the group will be able to ramp up production as rival supply surges.

Key alliance members have pumped above their assigned quotas recently as well. Even so, the intention to produce more will have a psychological effect on markets, analysts at Engie’s EnergyScan said.

The UAE was given a 300,000 barrel-a-day boost to its production target for next year.

“The consequence is lower oil prices in a context of oversupply,” they said.

Traders are also monitoring the possibility of a rebound as the recent selloff. It’s the first time Brent breached the threshold on its 14-day relative strength index since May 2023. 

It comes as Russia’s four-week average crude exports fell for a fourth week, with shipments hitting the lowest level since mid-February. 

Russia had pledged to compensate for overproduction against its April output target, which it blamed on the “technicalities” of making significant output cuts. Falling crude exports may indicate that Moscow is following through on its promise, though production and exports are not perfectly correlated.

• Reuters and Bloomberg