Oil prices fell in Asian trading on Tuesday, continuing the previous session’s decline to a four-month low as investors anticipated increased supply and weak demand from the US. Brent crude futures dropped by 49 cents, or 0.63%, to $77.87 per barrel at 0343 GMT, having closed below $80 for the first time since February 7 after a 3% fall on Monday. US West Texas Intermediate (WTI) crude futures decreased by 51 cents, or 0.51%, to $73.71, also settling near a four-month low after a 3.6% drop on Monday.
OPEC+ Agrees to Extend Output Cuts:
The Organization of the Petroleum Exporting Countries and allies, including Russia (known as OPEC+), agreed on Sunday to extend most of their oil output cuts into 2025. However, they allowed for the gradual unwinding of voluntary cuts from eight members starting in October 2024.
Market Insights:
“Oil prices have been hit by a double whammy recently,” said Yeap Jun Rong, a market strategist at IG, in an email. “OPEC+’s guidance to start easing some production cuts from October 2024 has weighed on supply, while weaker-than-expected US manufacturing activity has not supported demand.”
US Manufacturing Slowdown:
US manufacturing activity slowed for the second consecutive month in May, and construction spending unexpectedly fell for the second month in April due to declines in non-residential activity. Both factors could lead to reduced oil and fuel demand.
Economic Weakness and Oil Prices:
Yeap Jun Rong added, “With the ‘bad news is bad news’ mantra in place, further economic weakness could drive oil prices lower, potentially retesting the lower end of its month-long range at $72.00.”
Weakened Demand Growth:
Oil prices have been pressured by signs of weakening demand growth in recent months, with US fuel consumption data under scrutiny. The average gasoline price in the US dropped by 5.8 cents per gallon to $3.50 per gallon on Monday, according to GasBuddy data.
Upcoming Data:
The US government will release inventory and product supplied data on Wednesday, indicating how much gasoline was consumed during the Memorial Day weekend, the start of the US driving season.
Analyst Perspective:
“Concerns about the US consumer, end-user oil demand (which has suffered from data accuracy issues in May), and its global implications are growing in the broader market,” said Neil Crosby, an analyst at Sparta Commodities, in a weekly client note.
