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Brent crude was trading down well over 3% on Monday, marking the first time the global benchmark has been below $80 since February, with the U.S. crude benchmark down over 3.5% following the OPEC+ agreement to start phasing out voluntary cuts in October.
On Monday at 11:54 a.m. ET, Brent crude was trading down 3.29% at $78.44, for a loss of $2.67 on the day. West Texas Intermediate (WTI) was down 3.51% at $74.29 per barrel, for a loss of $2.70 per barrel.
On Sunday, OPEC+ agreed to extend both voluntary and group-wide production cuts until 2025, with Energy Intelligence’s Amena Bakr noting that the voluntary cuts would be extended until the third quarter of 2024, after which the countries currently cutting would begin to bring back production if the market conditions are right.
“We are waiting for interest rates to come down and a better trajectory when it comes to economic growth ... not pockets of growth here and there,” Reuters cited Saudi Arabia’s energy minister Abdulaziz bin Salman as saying.
Oil prices have responded in a downward spiral due to the fact that the majority of the total cuts from both categories come from the voluntary scheme. Total cuts are 3.66 million barrels per day, while 2.2 million bpd of that is accounted for by the voluntary scheme.
Additionally, the UAE’s production quota was adjusted upwards with a baseline of 300,000 bpd.
“Some people read the OPEC statement, particularly the part about the adding barrels back from the voluntary cut, as bearish,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC.
Markets are also being cautioned that the latest OPEC+ decisions could be reversed, depending on market conditions.
“They were pretty clear that this is going to be data dependent. As we get to the end of August, if the fundamental picture looks worse than what we have now, they would pause that addition,” Croft added.
By Tom Kool for Oilprice.com
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