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Oil falls 3% on OPEC production cut as demand worries surface

In Business
June 03, 2024

Oil prices fell as much as 3.5% on Monday following OPEC+’s decision to start unwinding some voluntary cuts earlier than anticipated amid recent softness in oil prices and demand concerns heading into 2025.

West Texas Intermediate (CL=F) futures slid to below $75 per barrel, while Brent (BZ=F), the international benchmark price, was hovering around $78.60 in midday trading. Oil futures are down roughly 13% from their April peak.

Monday’s heavy selling was “exacerbated by technical pressure and limited interest in buying the dip as demand has been a bit soft,” Rebecca Babin, US senior energy trader at CIBC Private Wealth, told Yahoo Finance.

Over the weekend, the oil alliance led by Saudi Arabia extended its 3.6 million barrels per day of existing cuts until the end of next year, but additional reductions of 2.2 million barrels per day would start to unwind over the next 12 months, starting this October.

“Barring a material upside surprise in demand, lifting previous cuts after this coming September could prove premature,” Peter McNally, global head of analysts at Third Bridge, said in a note on Monday.

JPMorgan analysts saw the move as “market neutral” for oil balances and prices in 2024, though a demand slowdown is forecast for next year.

“We have been arguing that the group should unwind some of the voluntary reductions in 2024 at a time when demand allows for it (at the expense of slightly lower prices),” wrote Natasha Kaneva, head of the global commodities strategy team at JPMorgan.

“Otherwise … OPEC’s massive effective spare capacity — a historic 4.1 mbd high at a time of record demand — will make it increasingly difficult to accommodate further large-scale supply reductions when they will likely be needed in 2H25.”

Crude’s downward trend has also helped ease gasoline prices in recent weeks.

On Monday, the national average for gasoline stood at $3.53 per gallon, down $0.06 from one week ago, the largest weekly drop of 2024, according to AAA data.

“We’re seeing an epic slide for wholesale gasoline prices and cocktail party chatter is likely to focus on plunging retail numbers,” Tom Kloza, global head of energy analysis at OPIS, told Yahoo Finance last week.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

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