Oil Slumps as OPEC's Surprise Plan to Raise Output Adds to Gloom (2024)

(Bloomberg) — Oil tumbled after OPEC+ unexpectedly rolled out a plan to restore some production to the market this year, adding to the bearish momentum crude has been experiencing for months.

Global benchmark Brent crude futures slipped 3.4% to settle above $78 a barrel, while West Texas Intermediate fell 3.6% to settle near $74 a barrel. Both benchmarks are at their lowest prices since February.

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OPEC and its allies over the weekend agreed to start rolling back some production cuts starting in October, earlier than many market watchers had expected. The curbs will continue in full in the third quarter, before gradually phasing out over the following 12 months. Analysts had been torn on whether the decision would be bearish for crude, or whether the group would still be able to diligently manage the market.

Oil has dropped over the past two months as geopolitical risks ebbed and demand showed signs of weakening. Evidence of a softening physical market has also arisen, with Brent’s prompt spread narrowing to 13 cents, closely approaching a bearish contango structure that signals ample supplies in the near future.

Read More: OPEC+ Extends Cuts But Lays Out Plan to Bring Barrels Back

“The market is coming to terms with the wind-down of the voluntary cuts starting in October,” Ryan McKay, a commodity strategist at TD Securities, wrote in a note on Monday. “The easing of supply risk premia has already been weighing on prices and spreads, and the OPEC agreement has done little to turn that tide.”

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Goldman Sachs Group Inc. said the OPEC+ decision was bearish, but UBS Group AG and RBC Capital Markets LLC expressed confidence the alliance will maintain control of the market. Most analysts had expected OPEC+ to extend the curbs through to the end of the year.

Read More: OPEC+ Says Goodbye to Its $100-a-Barrel Oil Quest: Javier Blas

Oil capped a monthly loss on Friday, in part due to persistent concerns around demand in China, the world’s biggest crude importer. Supplies have also remained elevated over the past several months, and millions of barrels of American crude are sitting unsold, weakening WTI’s prompt spread closer to a bearish contango structure.

The slump comes as Saudi Aramco’s top executives are about to embark on a series of events in London and the US to drum up demand for the oil giant’s $12 billion share sale.

Crude prices are still higher this year as geopolitical tensions from the Middle East to Ukraine raise concerns about supply.

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