Brent nosedives following oversupply concerns in the oil market
The front-month ICE Brent contract plunged $4.16/bbl on the day, to trade at $77.18/bbl at 09.00 GMT.
PHOTO: Getty Images
Upward pressure:
Brent futures found limited support from OPEC’s latest policy decision meeting, where eight leading producers from the coalition collectively agreed to extend their production cut of 2.2 million b/d until September 2024.
Although OPEC said that it will start bringing some of these cuts back online this October, the Vienna-headquartered body can pause or reverse these cuts depending on market conditions.
“OPEC+ made it clear that the return of these barrels to the market can be paused if market conditions do not allow for this additional supply,” two analysts from ING Bank remarked.
Downward pressure:
As worries about oversupply intensified in the global oil market, Brent's price dipped below the $80/bbl benchmark. This decline followed the OPEC+ decision to gradually phase out the 2.2 million b/d supply cut, scheduled to unfold between October 2024 and September 2025.
Oil market analysts expected the output policies to remain in place until the end of this year, according to ANZ Bank’s senior commodity strategist Daniel Hynes.
Oil prices were down “in response to the OPEC/non-OPEC decision on Sunday [2 June] to gradually unwind 2.2 million b/d of production cuts over October 2024 to September 2025,” VANDA Insights’ founder and analyst Vandana Hari said.
Inflation in the US, indicated by the change in the Personal Consumption Expenditures (PCE) price index, remained elevated at 2.7% in April year-on-year, the US Bureau of Economic Analysis (BEA) reported.
Brent’s price experienced further downward pressure after the US PCE price index figures raised doubts about how soon the US Federal Reserve (Fed) will start cutting interest rates and led analysts to project a decline in demand in the world’s largest oil-consuming nation.
“[Demand] concerns were heightened after the release of weak economic data in the US,” Hynes said.
By Aparupa Mazumder
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