Oil prices fall as Opec+ plans to unwind cuts

Brent, the international benchmark, fell more than 2%


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Oil rig pumpjacks near Long Beach, California. — Reuters file
Oil rig pumpjacks near Long Beach, California. — Reuters file

Published: Mon 3 Jun 2024, 7:43 PM

Last updated: Mon 3 Jun 2024, 7:44 PM

Oil prices fell on Monday as the Opec+ group of major crude producers signalled they would start to unwind output cuts later this year.

Stock markets, meanwhile, mostly rose on renewed hopes for US interest-rate cuts.

Oil prices slipped after the Orgaisation of Petroleum exporting Countries and its Russian-led allies said on Sunday they would maintain output levels but begin to restore production from October, even as questions about China’s economic recovery and a spike in US stockpiles cause investors to fret over demand.

“This deal looks to draw a line under attempts to drive energy prices sharply higher for the time being,” said Joshua Mahony, chief market analyst at Scope Markets.

Brent, the international benchmark, fell more than two per cent to below $80 per barrel for the first time since February.

The US contract, West Texas Intermediate, dropped 2.5 per cent to $75.06 per barrel.

“Opec + surprised the market when it announced its decision on production quotas on Sunday,” said XTB analyst Kathleen Brooks. “While it will extend cuts for some key Opec members like Saudi Arabia and Russia well into 2025, it will also start to roll back some measures as soon as October, which is earlier than the market had expected,” she said.

European natural gas prices meanwhile jumped more than 10 per cent after the closure of a pipeline linking key producer Norway with Britain.

The Langeled pipeline was shut after “operational problems” occurred at the Sleipner Riser offshore platform that will require repair work, said Randi Viksund, spokeswoman for the Norwegian transport operator Gassco.

Europe’s benchmark contract for natural gas climbed to 38.70 euros per megawatt hour before easing to 37.15 euros in afternoon trading. That remains far below 2022 levels struck after Russia’s Ukraine invasion.

Among stock markets, European indexes were broadly higher and Wall Street saw gains at the open except for the Dow, which treaded water after leading a late-session rally on Friday.

In Asia, Mumbai saw strong gains on expectations that India’s Prime Minister Narendra Modi would secure a third term, potentially leading to further economy-boosting measures.

Pre-weekend news that the personal consumption expenditures (PCE) index — the Fed’s preferred measure of inflation — slowed in April to the lowest level since December provided a boost to sentiment after equity weakness last week.

“Despite some rocky sessions which saw some sharp sell-offs, May was strongly positive” for stocks, said David Morrison, senior analyst at Trade Nation.

He noted that US Treasury yields had also eased back from last week, reflecting expectations that official rates will be heading lower later this year.

Attention now turns to Friday’s release of US jobs data, as Fed officials have said looser monetary policy will depend on signs that tightness in the job market, which can fuel wage growth, is easing.

“Chance of a Federal Reserve rate cut — or two (this year) — could help improve the investor sentiment this week,” Swissquote analyst Ipek Ozkardeskaya said.

Before then, the European Central Bank is widely expected to begin cutting rates at its meeting on Thursday even though inflation remains above the bank’s target of two per cent.

“If so, this will be the first time ever that it has led the US Federal Reserve in easing monetary policy,” Morrison said.

Asian investors started June in a buoyant mood, pushing Hong Kong solidly higher thanks to a surge in Chinese tech firms, while Tokyo, Sydney and Seoul also posted gains though Shanghai edged lower.

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