Oil records monthly loss on growing supply glut concerns

Opec+ is expected to extend some output curbs after its meeting on Sunday

Crude oil storage tanks at the Cushing oil hub in Oklahoma. US crude stocks decreased by 4.2 million barrels in the week that ended on May 24. Reuters

Oil prices fell on Friday and posted a weekly loss, recording a loss for the second consecutive month amid growing concerns of a supply glut in the market.

Brent, the benchmark for two thirds of the world’s oil, traded 0.29 per cent lower at $81.62 a barrel at the market close on Friday.

West Texas Intermediate, the gauge that tracks US crude, was down 1.18 per cent at $76.99 a barrel.

Crude futures have come under pressure this month amid expectations of higher-for-longer interest rates, bearish sentiment in broader financial markets, and signs of slowing demand from China.

“For the first time in months, the immediate Brent futures spread shifted into a contango – a market scenario where near-term prices are lower than those in future months – signalling concerns of a supply glut,” Saxo Bank said in a research note on Friday.

This month, the International Energy Agency lowered its oil demand growth forecast for 2024 by 140,000 barrels per day to 1.1 million bpd, citing weak demand in Europe.

Meanwhile, global oil supply is projected to increase by 580,000 bpd this year to a record 102.7 million bpd, as non-Opec+ output rises by 1.4 million bpd, the agency said.

The Opec+ alliance of oil producers is widely expected by analysts to extend voluntary output cuts of 2.2 million bpd into the second half of 2024 when it meets on June 2.

The group currently has total production cuts of 5.86 million bpd in place, representing roughly 6 per cent of global oil demand.

Oil prices fell on Thursday despite a large drop in US crude inventories, which indicate the stockpile or supply levels of crude oil held in storage in the country.

US crude stocks decreased by 4.2 million barrels in the week that ended on May 24, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a drop of 1.9 million barrels.

“The ugly geopolitical situation in the Middle East does trigger short-term price spikes, but price rallies due to geopolitical tensions tend to remain short-lived,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

British and the US forces carried out a joint operation against the Iran-backed Houthis on Thursday “to degrade their ability to persist with their attacks on international shipping in the Red Sea and Gulf of Aden”.

The UK Ministry of Defence said intelligence confirmed two sites near Hodeidah as being involved with the Houthi anti-shipping attacks.

Earlier this week, an Egyptian security force member was killed in a shooting incident near the Rafah border crossing between Egypt and the Gaza Strip, raising fears of a broader conflict.

Last week, oil prices recorded a weekly loss on concerns that the US Federal Reserve will keep interest rates higher for longer to tackle stubborn inflation.

Minutes from the central bank’s latest policy meeting showed that policymakers are questioning whether the current interest rates are sufficient to curb persistent inflation.

“Inflation is widely expected to record a slowdown in price growth in the US, which could pave the way for the Fed to seriously consider cutting interest rates later this year,” said Mohamed Hashad, chief market strategist at Noor Capital.

“Meanwhile, US consumer income and spending readings may record signals that the US economy is not moving at a steady pace in terms of growth,” he added.

Fed officials have kept interest rates in a range of 5.25 per cent to 5.5 per cent, a two-decade high, since last July.