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Oil prices extended their losses to a second day on Tuesday, as traders fretted about weak US economic data and news that Opec+ members were ready to raise production.
Brent crude, the international benchmark, fell 1.4 per cent to $77.29 per barrel on Tuesday, adding to a 4 per cent drop the previous day. If maintained, the two-day losses would be the biggest since the start of May. The US benchmark West Texas Intermediate fell 1.2 per cent to $73.35.
Members of the cartel agreed at the weekend to bring back a small proportion of its curbed production this year as eight members agreed to unwind some “voluntary cuts”. Then on Monday a report showed that US manufacturing activity was weaker than economists had expected in May.
Opec+’s stance is a “warning shot” to competitors that it is not willing to sacrifice market share indefinitely, said Bjarne Schieldrop, chief commodities analyst at SEB, although he added that the cartel was unlikely to flood the market.
“Until now, there has been a one-way message saying that price over volume was their priority,” Schieldrop said. “They have been holding back large volumes and now they are saying ‘we want our market share back’.”
The change in stance by Opec+ would make the market more sensitive to economic data, he added.
The price of Brent has now retreated 8 per cent in the past week as rising oil inventories and weak economic data have fuelled concerns that global demand will remain depressed, while stubbornly high inflation will cause central banks to delay interest rate cuts.
Opec+ has been struggling with a dilemma of how long it can keep acting to prop up prices by curbing its production, a move that allows its competitors, primarily US shale producers, to take a bigger share of the market.
The group said at the weekend that it would bring back a portion of its curbed production later this year, even as it also pledged to stick with cuts that have kept about 3mn barrels a day from the market since late 2022. The extra production could be stopped or reversed if market conditions were unfavourable.
Opec+ is also keen not to be seen as influencing November’s US presidential election, for instance with a sharp rise in energy prices.
Some analysts had expected Opec+ to maintain its curbs for the rest of the year. The International Energy Agency, the west’s energy watchdog, in March said its estimates assumed that voluntary cuts made by Opec+ members to try to support prices would remain in place throughout 2024.
Last month it forecast an additional 580,000 barrels a day of global oil supply, based on non-Opec+ output rising by 1.4mn barrels, while Opec+ production would fall to 840,000 barrels a day, “assuming that voluntary cuts are maintained”.
Giovanni Staunovo, a commodities analyst at UBS, said the delayed market response — prices stayed relatively calm in Asian and European trade before opening in the US on Monday — meant that it was hard to attribute the declines just to the Opec+ meeting.
Technical trading could have pushed prices lower after Brent breached the $80 level to the downside, he said. Staunovo expects the price to rise above $90 by September as supply growth lags behind demand growth.