Oil prices nosedive on signs of oversupply

Benchmark Brent has been trading below $80 for the first time since February

Crude prices plunged more than 3% on Monday to multi-month lows as investors are anticipating signs of imminent oil oversupply following OPEC’s latest complex output decision.

Global benchmark Brent crude was down 3.5% on Monday, at $78.29 a barrel as of 19:33 GMT. It marks the first time that Brent has been trading below $80 since February. The US crude benchmark, West Texas Intermediate (WTI), was also down over 3.7% at $74.14 per barrel.

“Most of it is due to the OPEC meeting and concerns about more oil coming to the market in general,” Direxion’s Ed Egilinsky told Barron’s, adding “Several countries are going to phase out and that will get more oil into markets after October.” 

On Sunday, OPEC+ agreed to extend both voluntary and group-wide production cuts until 2025, but left room for additional voluntary reductions of 2.2 million barrels per day (bpd) by eight core members, including leading exporters Saudi Arabia and Russia, to be gradually unwound from October onwards. The group also agreed to a new output target for the United Arab Emirates, which has been pushing for a higher quota.

Some analysts called the group’s decision bearish for oil prices in light of high interest rates and rising output from non-OPEC producers like the US.

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“Ultimately, a combination of factors has come into play,” independent oil analyst Gaurav Sharma told Reuters, highlighting disappointing economic indicators in the US and China.

Investors reportedly have been concerned that the latest OPEC+ decisions could be reversed, depending on market conditions.