Oil prices fell more than 1% on Thursday after reports emerged that the OPEC+ group of producers might boost production in July. This has seen worries emerge about global production eventually overtaking growth in demand, putting pressure on an already volatile market.
Brent crude fell by $1.08, ending the session at $63.83 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) declined by $1.02, closing at $60.55. The fall came after reports emerged that the OPEC+ group of producers discussed a possible July raise of about 411,000 barrels a day in their production levels.
OPEC+, a collective of nations producing oil and comprising Saudi Arabia and Russia, has continued lifting the previously imposed output reduction on a gradual basis. The upcoming June 1 gathering will center on speeding up those rises, according to delegates. Although there has not been a decision yet, an even greater production boost remains on the cards.
Recent market readings indicate increasing concern. Analysts suspect that OPEC+ might be moving away from supporting high prices and toward keeping market share instead. The shift in policy comes in response to a surprisingly higher jump in U.S. crude inventories last week. Inventories climbed 1.3 million barrels against expectations of a drawdown.
Crude imports also hit a six-week high and gasoline and distillate demand weakened. These moves in demand patterns indicate oil demand isn’t picking up as rapidly as supply is increasing. It remains to be seen whether this disparity weighs heavily on prices in the immediate term.
Global investors also monitor financial signs. An increase in the yield on the United States 10-year Treasury bond suggests investors are less confident in future demand. It could encourage producers to produce more oil for a market not prepared to take it in. Its proponents maintain that the intended boost from OPEC+ will lead US producers to also increase their exports to Europe and Asia as they remain competitive. The blend of increased global supply and soft demand would set off a protracted episode of volatility in prices.
Markets are on their guard as the June OPEC+ meeting looms on the horizon. The dynamics between economic expansion and supply growth will determine energy prices in the upcoming months.
