NEW YORK – Oil prices tumbled by USD 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 USD 2.75, or 3.4%, to settle at USD 78.36 a barrel, closing below USD 80 for the first time since Feb. 7. US West Texas Intermediate crude futures also closed at a near four-month low of USD 74.22 a barrel, down by USD 2.77 or 3.6% from Friday.
Both contracts were down by USD 3 a barrel in post-settlement trading.
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.
An aide to the Israeli prime minister confirmed on Sunday that Israel had accepted a framework deal for winding down the Gaza war, although the Israeli side called it a flawed deal.
Signs of weakening demand growth have also weighed on oil prices in recent months, with data on US fuel consumption in focus.
The US 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 US driving season.
“The hard numbers are that the market is well-supplied,” said John Kilduff, partner at Again Capital.
“If we do not get a spectacular number on Memorial Day in the US, that’s going to be game over,” Kilduff added.
US gasoline futures RBc1 fell more than 3% on Monday to a more than three-month low of USD 2.34 a gallon.
US efforts to replenish the country’s Strategic Petroleum Reserve (SPR) could provide some support for oil prices. The United States is buying another 3 million barrels for the SPR at an average price of USD 77.69 a barrel, the US Department of Energy said on Monday.
(Reporting by Shariq Khan in New York, Natalie Grover in London, Mohi Narayan in New Delhi, and Emily Chow in Singapore; Editing by David Goodman, Kirsten Donovan, Sriraj Kalluvila, David Gregorio, Will Dunham, and Deepa Babington)
This article originally appeared on reuters.com