Oil prices continued their decline on Monday, driven by a combination of anticipated increases in OPEC+ production and signs of weak demand growth in both China and the U.S., the world’s largest oil consumers.
Market Movements:
Brent Crude: Fell by 56 cents, or 0.7%, to $76.37 per barrel by 0646 GMT.
West Texas Intermediate (WTI) Crude: Dropped 45 cents, or 0.6%, to $73.10 per barrel.
These declines follow a 0.3% drop in Brent and a 1.7% fall in WTI last week.
Key Factors Influencing Oil Prices:
OPEC+ Production Increase:
OPEC+ is set to increase oil output by 180,000 barrels per day (bpd) starting in October. This decision is part of a broader strategy to begin unwinding the recent 2.2 million bpd production cuts while maintaining other reductions until the end of 2025.
The prospect of higher production levels has raised concerns about a potential oversupply in the market.
Demand Concerns:
China: An official survey released on Saturday reported that Chinese manufacturing activity fell to a six-month low in August, indicating weak demand and economic challenges.
Although a private survey on Monday showed some signs of recovery, the overall outlook remains cautious.
U.S.: Data from the Energy Information Administration revealed that oil consumption in June reached its lowest seasonal levels since the COVID-19 pandemic in 2020.
Libya’s Production and Geopolitical Tensions:
Libyan oil exports are still halted due to internal disputes, although the Arabian Gulf Oil Company has resumed some production to meet domestic needs.
Tensions in the Middle East, including the Israel-Gaza conflict, have added to market uncertainties, but recent disruptions have been overshadowed by the broader demand concerns.
Future Expectations:
Analysts predict that if oil prices remain closer to $70 rather than $80 per barrel, OPEC+ might reconsider its production increase plans to support prices.
ANZ analysts foresee potential delays in phasing out voluntary production cuts if economic conditions in China and the U.S. do not improve.
U.S. Rig Count:
The number of active U.S. oil rigs remained unchanged at 483 last week, according to Baker Hughes.
Outlook:
The ongoing combination of high supply expectations from OPEC+ and subdued demand from major consumers is likely to keep oil prices under pressure in the near term.
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