Oil prices continued to decline after OPEC+’s decision to increase production earlier than anticipated raised concerns about a potential oversupply. Brent crude dropped below $78 per barrel following a 3.4% decrease in the August contract on Monday. West Texas Intermediate also fell below $74 per barrel. Despite worries about the demand outlook and ample supply from non-OPEC+ countries, the alliance plans to start easing output cuts as soon as October. This move has drawn mixed reactions from market observers, with some expecting the cuts to be extended until the end of the year. There are also doubts about the group’s ability to increase production amid a surge in rival supplies. Furthermore, some key OPEC+ members have exceeded their assigned production quotas recently.
According to Warren Patterson, the head of commodities strategy for ING Groep NV in Singapore, the reversal of production cuts will result in a slight surplus in the oil market next year. However, OPEC+ has emphasized that the reintroduction of barrels may be halted if the market conditions are not favorable for increased supply.
Since the beginning of April, oil prices have been declining due to a decrease in geopolitical risks and weakening demand, which has caused some refiners to reduce their operating rates. As a result, the prompt spread for Brent has narrowed, indicating an abundance of near-term supplies and reflecting a bearish contango structure.