Oil prices slumped sharply on Monday after the Opec+ alliance of oil-producing countries agreed to increase production for a second month in a row.
Brent, the benchmark for two thirds of the world's oil, was down 3.65 per cent at 8.35am UAE time to $59.06 per barrel. West Texas Intermediate, the gauge that tracks US crude, sank almost 4 per cent to $55.99 a barrel.
Oil prices have taken a hammering over the past few weeks, and both benchmarks were down about 17 per cent year-to-date, as of close on Friday.
The Opec+ group of producers, led by Saudi Arabia and Russia, on Friday said it would add 411,000 barrels a day to the market next month. The announcement after an online meeting of the countries, which was brought forward from Monday, followed the larger-than-planned output rise, also of 411,000 bpd, for May.
The group said it has taken the decision to increase crude output “in view of the current healthy market fundamentals, as reflected in the low oil inventories”.
The Opec+ decision follows the December 5 agreement to start a gradual and flexible return of the 2.2 million barrels per day voluntary adjustments that started from April 1.
“The gradual increases may be paused or reversed subject to evolving market conditions. This flexibility will allow the group to continue to support oil market stability,” Opec said in the statement.
However, the accelerated hike in the output, together with US trade tariffs that has dampened economic growth expectations, has clouded demand outlook for crude, dragging prices below $60 a barrel to a four-year low.
“Crude futures were back on a slippery slope early Monday in response to Saturday’s decision by the Opec/non-Opec group of eight members to accelerate the phase-out of their production cuts for a second consecutive month,” Singapore-based oil markets consultancy Vanda Insights wrote in a note on its website.
The group’s combined output target for June, at 31.375 million bpd, is about 411,000 bpd higher than May and triple what had been planned in March, when the group laid out a plan to gradually unwind its 2.2 million bpd of cuts over 18 months, according to Vanda Insights.
“Sentiment got a fresh bearish jolt from media reports after Saturday’s meeting that the G8 could bring back the entire 2.2 million bpd into the market by November,” the consultancy said.
On Sunday, Barclays lowered its Brent oil price forecast by $4 per barrel to $66 per barrel for 2025 and by $2 to $60 per barrel for 2026, citing the decision by Opec+ to accelerate oil production hikes.
“Tariff-related developments have certainly been a drag but the Opec+ pivot has also been a significant driver of the move lower in oil prices of late,” Reuters cited Barclays as saying in a note to investors.
Barclays also revised its baseline view on Opec+, expecting the group to continue its accelerated path of phasing out additional voluntary adjustments, and now sees it taking effect in six months from the initial plan of 18.
