Oil futures extended declines on Tuesday following Opec+'s plan to return barrels to the market earlier than expected, raising fears of oversupply in the market.
Brent fell as much as 2%, below US$77 per barrel, extending the previous day's losses. West Texas Intermediate was trading at around $72.50. The Opec+ alliance is scheduled to begin reducing its production in Octoberdespite persistent concern about demand prospects and strong supply from producers outside the group.
Some market observers expected Opec+ to extend cuts until the end of the year and reaction to Sunday's deal was mixed, with doubts over whether the group will actually be able to increase output in the face of rising rival supply. Major alliance members have recently bombed beyond their allocated quotas.
Removing the production cuts “will leave the market with a small surplus next year,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. However, Opec+ made it clear that the return of barrels can be paused if market conditions do not allow additional supply, he added.
Still, the intention to produce more will have a psychological impact on the markets, analysts at Engie's EnergyScan wrote in a note. The United Arab Emirates will increase its production target for next year by 300,000 barrels per day. “The consequence is a decline in oil prices in a context of excess supply,” he said.
