Oil Hits Four-Month Low as OPEC+ Decision Fails to Allay Demand Worries

• Oil prices tumbled by just under $3 a barrel on Monday to their lowest in nearly four months, as investors worried that a complicated OPEC+ output decision could lead to higher supplies later in the year, even though demand growth has been slow. Brent crude futures fell by $2.75, or 3.4%, to settle at $78.36 a barrel, closing below $80 for the first time since Feb. 7. U.S. West Texas Intermediate crude futures also closed at a near four-month low of $74.22 a barrel, down by $2.77 or 3.6% from Friday.
• OPEC+ on Sunday agreed to extend most of its oil output cuts into 2025 but left room for voluntary cuts from eight members to be gradually unwound from October onward. 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.
• "The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish OPEC expectations," Goldman Sachs analysts said. 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 United States.
• "Ultimately, a combination of factors has come into play," independent oil analyst Gaurav Sharma said, highlighting disappointing economic indicators in the United States and China. "When OPEC+ took the decision it did over the weekend, in a reasonably well-supplied crude market, traders factored in the macro picture alongside a dwindling risk premium (with talk of a ceasefire in Gaza) and went net short," Sharma said.
• Signs of weakening demand growth have also weighed on oil prices in recent months, with data on U.S. fuel consumption in focus. The U.S. government will release estimates of oil stocks and demand on Wednesday, which will show how much gasoline was consumed around the Memorial Day weekend, the start to the U.S. driving season.

(Source: Reuters)