Oil Falls to Lowest in Four Months with OPEC+ Supply Shift and US Stockpile Growth

OPEC+ Decision to Boost Supply

Oil prices have fallen to their lowest levels in about four months following OPEC+’s announcement to unwind its production cuts. The decision, set to take effect as early as October, has intensified the oil market’s bearish sentiment. This move comes amid ongoing concerns about demand and increasing supplies from outside the OPEC+ alliance. Additionally, the perceived reduction in geopolitical risks to crude supplies has contributed to the downward pressure on prices.

Increased US Crude Stockpiles

The American Petroleum Institute (API) reported a substantial increase in US crude inventories, with a rise of 4.1 million barrels in the week ending May 31, 2024. Gasoline stocks also surged by more than 4 million barrels, doubling the build expected by analysts. This increase in stockpiles comes at a crucial time, reflecting fuel usage around the Memorial Day holiday, which marks the beginning of the US driving season. The official stockpile data from the US Energy Information Administration is eagerly awaited to confirm these figures.

Impact on the Oil Market

The combination of OPEC+’s plan to boost supply and the rising US stockpiles has kept oil prices hovering near four-month lows. The international benchmark Brent crude dipped below $80 per barrel for the first time in four months on Monday. On June 4, 2024 Brent breached the threshold on its 14-day relative strength index for the first time since May 2023, settling slightly above $77.10. This marked a significant decline of 10.19% from the highs of this month, where Brent traded at $85.85. Similarly, West Texas Intermediate (WTI) hit oversold levels with its RSI falling below 30 on June 4, 2024, setting the stage for potential relief.

Geopolitical and Economic Factors

OPEC+’s decision to unwind production cuts earlier than expected has spooked the market. Some doubt the group’s ability to ramp up production given recent instances of key alliance members pumping above their assigned quotas. Despite these concerns, the psychological effect of OPEC+’s intention to produce more oil has weighed heavily on market sentiment.

Future Outlook

While the increased supply from OPEC+ is expected to keep a lid on oil prices in the short term, the market remains cautious. Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, has indicated that OPEC+ could pause or reverse the unwinding of cuts if demand proves insufficient to absorb the additional barrels. This cautious approach highlights the alliance’s flexibility in responding to market conditions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.