US oil slips below $40 as Opec+ begins to ease cuts
US crude prices dipped below $40 a barrel as Opec+, an alliance led by Saudi Arabia and Russia, began to raise output.
Futures in New York fell by 0.84 per cent to trade at $39.93 a barrel at 2.51pm UAE time amid expectations that more crude will come to the markets in August.
Brent, the international benchmark, was down 0.28 per cent at $43.24 per barrel.
“Softer global risk appetite and increased downside pressure on global oil demand have been preparing the ground for a slide below the $40 per barrel in WTI crude,” said Ipek Ozkardeskaya, a senior commodity analyst at Swissquote Bank.
Encouraging manufacturing data, however, should slow the softening in oil prices, she said.
But even signs of economic recovery are unlikely to “prevent a downside correction below the $40 mark as the premature tapering of the Opec production cuts increases the worries of a higher global glut in the coming months”, Ms Ozkardeskaya said.
Opec+ agreed in April to reduce oil production by 9.7 million barrels per day in May and June to balance the market. The pact was later extended to the end of July.
West Texas Intermediate, which largely tracks US crude grades, fell below zero in April as the amount of oil produced exceeded available storage capacity at the benchmark’s physical delivery point in Cushing, Oklahoma.
The move to cut production helped reduce stock levels and returned oil prices to above $40 per barrel.
However, with movement restrictions being relaxed around the world and demand for oil picking up, the joint ministerial monitoring committee of Opec+ agreed to ease the pace of cuts.
The group began to draw back 7.7 million bpd of crude from the market this month while countries that had previously failed to meet their quota are expected to make compensatory cuts until September.
The additional volume of cuts to be made by Iraq, Nigeria, Angola and Kazakhstan could bring the overall reduction to about 8.1 million bpd. Voluntary cuts made by the Saudi Arabia, the UAE and Kuwait also ended.