Oil Prices Fall Over $1 Amid Rising Supply Concerns and Weakening U.S. Demand
Oil Prices Decline Amid Rising Supply Concerns
Oil prices experienced a significant drop of over $1 on Tuesday, continuing the downward trend seen in the previous session, which marked a four-month low. Investor concerns about increasing supply later in the year and indications of weakening U.S. demand contributed to this decline.
Brent and WTI Crude Futures Fall
Brent crude futures fell by $1.14, or 1.5%, to $77.22 per barrel as of 0825 GMT. This drop follows a closure below $80 on Monday, the first time since February 7, with a decline of more than 3%. Similarly, U.S. West Texas Intermediate (WTI) crude futures decreased by $1.23, or 1.7%, to $72.99 per barrel, after a 3.6% fall on Monday brought prices near a four-month low.
OPEC+ Decisions and Market Impact
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, decided on Sunday to extend most of their oil output cuts into 2025. However, they allowed for the gradual unwinding of voluntary cuts from eight members starting in October. Tamas Varga of oil broker PVM noted the market reaction, stating, "The market reaction is depressing to anyone who produces oil and brings elevated joy for consumers."
Signs of Weakening U.S. Demand
Increased supply from OPEC+ is set to enter a market where U.S. demand is already showing signs of weakness. U.S. manufacturing activity slowed for the second consecutive month in May, and construction spending fell unexpectedly in April due to declines in non-residential activity. These factors could lead to reduced oil and fuel demand.
Economic Weakness and Oil Prices
IG market strategist Yeap Jun Rong commented on the potential for further price declines, stating, "With the 'bad news is bad news' mantra in place, further evidence of economic weakness may lead oil prices lower, potentially paving the way for a retest of the lower end of its month-long range at the $72 level."
U.S. Fuel Consumption and Gas Prices
Signs of weakening demand growth have been affecting oil prices in recent months. U.S. fuel consumption data is closely watched, with average gasoline prices in the U.S. dropping by 5.8 cents per gallon to $3.50 per gallon on Monday, according to GasBuddy data.
Upcoming U.S. Inventory Data
The U.S. government is set to release inventory and product supplied data on Wednesday. This data, considered a proxy for demand, will show gasoline consumption around the Memorial Day weekend, marking the start of the U.S. driving season.
