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(Bloomberg) — Oil fell — after failing to hold an early gain — amid sustained skepticism that the latest supply cuts by OPEC+ will turn the market’s tide.
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Global benchmark Brent sank toward $78 a barrel after a six-week losing run, while West Texas Intermediate was below $74. The drop came despite speculation that the US Federal Reserve is done raising interest rates and the possibility US sanctions on Venezuelan supply could be re-tightened.
Oil just posted a back-to-back monthly decline as supplies from non-OPEC countries ballooned, while the outlook for demand growth softened. The retreat came even after a move last week by the Organization of Petroleum Exporting Countries and its allies to deepen production cuts. The proposal followed a difficult meeting that saw internal wrangling as well as a delay.
“Traders are likely to stay cautious given OPEC discord and rising non-OPEC oil production,” said Charu Chanana, market strategist for Saxo Capital Markets Pte.
Brent’s prompt spread — the gap between its two nearest contracts — has narrowed to 6 cents a barrel in backwardation. That’s down from 49 cents about a month ago, suggesting the market’s near-term outlook is loosening.
Crude will likely remain volatile, and potentially directionless, until the market sees clear data on the group’s voluntary output cuts, which take effect from next month, according to RBC Capital Markets LLC.
“We are re-entering a supply-driven market, one that more closely resembles the decade leading into Covid rather than the demand-led market seen in the post-pandemic era,” RBC analyst Michael Tran said in a note. “And those types are markets are often fraught with bull traps.”
In the Middle East, meanwhile, Iranian-backed Houthi rebels claimed they targeted two Israeli ships in the Red Sea, part of a series of attacks against commercial vessels in international waters amid the war in Gaza. The US said one of its destroyers shot down three drones.
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