Oil prices continued their slide on Tuesday on skepticism about an OPEC+ decision to boost supply later this year into a global market where demand has already shown signs of weakness.
Extending losses from a four-month low reached on Monday, Brent crude futures settled down 84 cents US, or more than one per cent, at $77.52 US a barrel. The closing price of Brent, the global benchmark price, on Monday was below $80 US for the first time since Feb. 7 after falling more than three per cent.
U.S. West Texas Intermediate crude futures — the North American benchmark — finished down 97 cents US, at $73.25 US. WTI had fallen by 3.6 per cent on Monday to settle near a four-month low.
In Canada, the downward trend in oil prices weighed on the TSX, where the energy index of companies was down more than two per cent.
“The same negative macro headlines that have raised likelihood of a cut tomorrow are affecting expected demand for energy products, which is weighing on oil prices,” said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.
The Organization of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC+, agreed on Sunday to extend most of their oil output cuts into 2025 but left room for voluntary cuts from eight members to be unwound gradually, beginning in October.
“My base case is that the market is over-reacting to the OPEC announcement,” said Phil Flynn with Price Futures Group.
The planned October unwinding adds jitters about oversupply in an environment where traders are already spooked about high interest rates hampering global economic activity.
A steady flow of dim signals from major economies such as the U.S., China and Europe suggest their appetite for oil may not be as healthy as hoped through the rest of the year.
“If we do see a significant drop in oil prices, then you will have to question the soundness of global economy,” Flynn said. “Then it will look like the Federal Reserve has done too much.”
On top of this, supply is rising from non-OPEC producers such as the United States.
Meanwhile on the demand side in the world’s top oil consumer, weekly U.S. oil data will show how much gasoline was consumed around last week’s Memorial Day weekend, the start to the U.S. summer driving season.