Oil slumps to four-month low amid oversupply fears

June 04, 2024 (MLN): Oil extended losses after closing at its lowest in almost four months on Monday after OPEC+’s plan to return barrels to the market earlier than expected raised concerns about oversupply.

Brent crude fell towards $77.78 per barrel, down another 0.74% on the day after slumping almost 4% yesterday.

While West Texas Intermediate crude (WTI) fell towards $73.57 per barrel.

The alliance is scheduled to start unwinding output cuts as early as October, despite persistent concerns around the demand outlook and robust supply from outside of the group, as Bloomberg reported.

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

Key alliance members have also pumped above their assigned quotas recently.

The unwinding of cuts “will leave the market in a small surplus next year,” said Warren Patterson, head of commodities strategy for ING Groep NV in Singapore.

However, OPEC+ made it clear that the return of barrels can be paused if market conditions do not allow for additional supply, he added.

Oil prices have trended lower since early April as geopolitical risks ebbed and demand showed signs of faltering, leading to some refiners cutting operating rates.

The prompt spread for Brent has narrowed again toward a bearish contango structure, signaling ample near-term supplies.

Crude’s latest string of declines has pushed prices into oversold territory, based on the 14-day relative strength index. It’s the first time that Brent has breached the threshold since May 2023.

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