Oil tumbled after OPEC+ unexpectedly rolled out a plan to restore some production to the market this year, adding to the bearish momentum crude has been experiencing for months.
OPEC and its allies over the weekend agreed to start rolling back some production cuts starting in October, earlier than many market watchers had expected.
The curbs will continue in full in the third quarter, before gradually phasing out over the following 12 months. Analysts had been torn on whether the decision would be bearish for crude, or whether the group would still be able to diligently manage the market.
Oil has dropped over the past two months as geopolitical risks ebbed and demand showed signs of weakening. Evidence of a softening physical market has also arisen, with Brent’s prompt spread narrowing to 13 cents, closely approaching a bearish contango structure that signals ample supplies in the near future.
“The market is coming to terms with the wind-down of the voluntary cuts starting in October,” Ryan McKay, a commodity strategist at TD Securities, wrote in a note on Monday.
“The easing of supply risk premia has already been weighing on prices and spreads, and the OPEC agreement has done little to turn that tide.”
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