By Adedapo Adesanya
Crude oil tumbled more than $2 a barrel on Monday as investors worried about the demand outlook despite an output decision from the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to phase out voluntary production cuts totalling 2.2 million barrels per day.
Brent crude futures lost $2.75 or 3.4 per cent to settle at $78.36 a barrel while the US West Texas Intermediate (WTI) crude futures dropped $2.77 or 3.6 per cent to $74.22 a barrel.
A coalition of eight OPEC+ members led by Saudi Arabia and Russia announced Sunday that they would begin phasing out those cuts over 12 months starting in October.
However, the planned phase-out will be subject to market conditions and could be reversed, the producers said.
OPEC+ is keeping separate tranches of production cuts totalling 3.6 million barrels per day in place until the end of 2025. Under the plan, more than 500,000 barrels per day would return to the market by December, and 1.8 million barrels per day would come back by June 2025.
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.
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 US. Some also worried that the OPEC+ announcement would make traders reluctant to buy oil for delivery later this year due to worries that prices will fall as supply returns to the market
On the geopolitical front, Israel’s prime minister, Mr Benjamin Netanyahu confirmed on Sunday that Israel had accepted a framework deal being advanced by the US for winding down the Gaza war, although the Israeli side called it a flawed deal.
Meanwhile, signs of weakening demand growth have also weighed on oil prices in recent months, with data on US fuel consumption in focus. The US Energy Information Administration (EIA) will release estimates of oil stocks and fuel demand on Wednesday, which will show how much gasoline (petrol) was consumed around Memorial Day weekend which is regarded as the start of the US driving season.