Oil Prices Drop For Fifth Straight Session, Hit 4-Month Low On Growth Concerns, 'Bearish' OPEC+ Meeting

Zinger Key Points
  • Crude oil prices dropped for the fifth straight session, with WTI crude closing at $73.32, the lowest since February 7, 2024.
  • Goldman Sachs sees OPEC+ meeting as bearish, noting plans to phase out 2.2mb/d of voluntary cuts despite inventory surprises.

Crude oil prices declined for the fifth consecutive session on Tuesday, with West Texas Intermediate (WTI) light crude, tracked by the United States Oil Fund USO, closing at $73.32. This marks the lowest level since Feb. 7, 2024.

The recent decline in oil prices is primarily due to increasing concerns about economic growth and an OPEC+ decision on supply that was less restrictive than anticipated.

The U.S. has reported a series of weaker-than-expected economic data over the past week, raising fears of a potential economic slowdown in the second quarter, which is perceived as a negative factor for oil demand.

Last week, the second estimate for U.S. GDP growth in the first quarter was revised downwards from 1.6% to 1.3%. Additionally, the Chicago PMI business activity index recorded its lowest reading since May 2020.

On Monday, the ISM Manufacturing PMI for May continued the contractionary trend observed in April, also falling short of expectations.

Tuesday’s data revealed that the number of job openings in April 2024 decreased by 296,000 compared to the previous month, reaching the lowest level since February 2021 and missing the forecasted 8.34 million.

OPEC+ Efforts Insufficient to Bolster Crude Prices

On Sunday, OPEC+ decided to extend most of their supply cuts into 2025 but allowed for voluntary cuts from eight member countries to be gradually reversed starting in October.

Goldman Sachs commodity analyst Daan Struyven commented, “We see the meeting as bearish because 8 OPEC+ countries already signaled to gradually phase out the 2.2mb/d of extra voluntary cuts over 2024Q4-2025Q3, despite recent upside surprises to inventories.”

The detailed communication of the plan to gradually reverse extra cuts complicates efforts to maintain low production if the market becomes softer than OPEC’s optimistic expectations.

The gradual unwinding of cuts indicates a strong desire to increase production among several members, given their high spare capacity.

Struyven added, “We now see the risks to our $75-90 range for Brent as skewed to the downside.”

U.S. energy stocks, as tracked by the Energy Select Sector SPDR Fund XLE, fell 1% on Tuesday, following a 2.6% decline on Monday, hitting the lowest close since mid-March.

Read now: Bond Market Rallies As Recession Worries Mount, Rate Cut Bets Gain Steam Ahead Of Jobs Data

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