Impact of OPEC+ verdict: Oil hits 4-month low despite extended supply cuts through 2025; The short-term outlook turns bearish

International crude oil prices fell on Wednesday, June 5, after hitting a four-month low in the previous session, despite the Organization of the Petroleum Exporting Countries (OPEC) extending supply cuts until 2025. A surprise rise in inventories of US crude and higher growth. -the higher-than-expected increase in fuel stockpiles fueled demand concerns among investors, amid worries about a supply surge later this year.

Brent crude futures were down 24 cents, or 0.3 percent, at $77.27 a barrel, while U.S. West Texas Intermediate crude futures were down 23 cents, or 0.3 percent, to to $73.02. Both contracts have fallen for five straight sessions and fell more than 1 percent on Tuesday to their lowest settlement since early February. Turning to domestic prices, crude oil futures rose 0.16 percent ₹6,177 per barrel on the Multiple Commodity Exchange (MCX).

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The impact of the OPEC verdict: what is weighing on the price of crude oil?

-US crude oil inventories rose by 1.2 million barrels in the week to May 31, compared with analysts’ estimates for a draw of 2.3 million barrels, according to data from the US Energy Information Administration (EIA). However, the build was below the American Petroleum Institute’s reading of an increase of more than four million barrels.

– Gasoline inventories rose 2.1 million barrels, compared with expectations for a two-million-barrel gain, adding to concerns about demand as the week reflected fuel consumption around the Memorial Day holiday, which is widely seen traditionally the start of the summer season in the US.

-The drop in prices comes after the recent political verdict of the Organization of the Petroleum Exporting Countries and its allies (OPEC+). The group of oil producers plans to increase supply from the fourth quarter, despite recent signs of weakening demand growth. Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said OPEC would stop rolling back the cuts or reverse them if demand is not strong enough to absorb the barrels.

-Oil prices were supported by data showing US private payrolls rose less than expected in May, with April data revised lower. The ADP jobs report added data on Tuesday showing that US job openings fell more than expected in April, which could help the US Federal Reserve in its fight against inflation and strengthen the case for reducing interest rates.

– The US could speed up the rate at which it supplies the country’s Strategic Petroleum Reserve, Energy Secretary Jennifer Granholm told Reuters on Tuesday, adding that she believes the global oil market is well supplied.

Read also: Expert view | OPEC to extend supply curbs to 2 hours; Crude oil seen at $70-90 in 2024: Kotak’s Kaynat Chainwala

Crude oil price outlook turns bearish

Oil prices fell below $73 for WTI and below $77 for Brent crude, weighed down by expectations that the oil market could enter a supply glut towards the end of the year following OPEC+’s decision to phase out further production cuts until September , near record US oil. production and inventories rising globally amid weaker demand, according to Pranav Mer, Vice President, EBG – Commodity and Currency Research, JM Financial Services Ltd.

“Technically the trend remains bearish to below 6,180, bearish prices could test 6,060/5,980 levels,” Mer added. Analysts also added that weakness in the dollar index and dovish remarks from US Federal Chairman Powell could provide some support for oil prices at lower levels.

“We expect crude oil prices to remain volatile this week ahead of US jobs data and ECB policy meetings. We anticipate that crude oil prices will continue to show volatility. Crude oil has support at $72.70-72.10 and resistance at $73.90-74.50. In INR terms, crude oil has support at ₹6,065-5,980 and resistance to ₹6,250-6,320,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Disclaimer: The opinions and recommendations provided in this analysis are those of individual analysts or brokerage firms, not of the Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.