Brent oil futures for August delivery dropped by 0.4% to $78.05 per barrel on Tuesday, reaching a four-month low. West Texas Intermediate crude futures also fell 0.4%, settling at $73.80 per barrel by 21:03 ET (01:03 GMT). Both benchmarks had previously declined by approximately 3.3% on Monday, marking their lowest levels since early February.
OPEC+ Signals Production Cuts Tapering
The oil market downturn followed an OPEC+ announcement over the weekend. The alliance decided to maintain its current production cuts of 3.6 million barrels per day (bpd) through the end of 2023. However, the group plans to gradually taper 2.2 million bpd of these cuts starting from the end of September 2024 through October 2025.
This tapering strategy is perceived as bearish, particularly if anticipated demand growth does not materialize. It also highlights the limited capacity of OPEC+ to continue propping up oil prices in the face of a potential demand shortfall.
U.S. Manufacturing Slump Adds to Demand Worries
Further pressure on crude prices came from disappointing U.S. economic data. The purchasing managers’ index (PMI) indicated that manufacturing activity contracted for the second consecutive month in May. This contraction has fueled fears that persistent high inflation and interest rates are stifling economic growth in the United States, the world’s largest consumer of fuel, potentially leading to weaker oil demand.
Focus on Upcoming U.S. Labor Market Data
Investors are now turning their attention to key U.S. labor market data due later this week, which could shape expectations for future interest rate decisions. The market is increasingly anticipating a potential rate cut by the Federal Reserve in September.
Adding to the cautious sentiment were mixed PMI readings from China, the world’s top oil importer. Official data revealed an unexpected contraction in China’s manufacturing sector last week, further dampening market outlooks.
Conclusion
The combination of OPEC+’s forthcoming production cuts tapering and weak economic indicators from major economies is weighing heavily on oil prices. Market participants will be closely monitoring economic data and central bank actions in the coming weeks to gauge future demand and price movements.
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