Oil prices slump as OPEC+ plans to start unwinding cuts
Oil prices slid Monday as the OPEC+ group of major crude producers signalled they would start to unwind output cuts later this year, with softer-than-expected US manufacturing compounding fears of weakening global oil demand. The concerns pulled stock indices back from earlier highs, seen on the back of hopes that easing inflation could allow the […]
Oil prices slid Monday as the OPEC+ group of major crude producers signalled they would start to unwind output cuts later this year, with softer-than-expected US manufacturing compounding fears of weakening global oil demand.
The concerns pulled stock indices back from earlier highs, seen on the back of hopes that easing inflation could allow the Federal Reserve to cut interest rates later this year.
Oil slipped after Saudi-led OPEC and its Russian-led allies said Sunday that they would maintain output levels but begin to restore production from October, even as questions about China’s economic recovery and a spike in US stockpiles cause investors to fret over demand.
“This deal looks to draw a line under attempts to drive energy prices sharply higher for the time being,” said Joshua Mahony, chief market analyst at Scope Markets.
Brent, the international benchmark, fell more than two per cent to below $80 a barrel for the first time since February.
“Opec+ surprised the market when it announced its decision on production quotas on Sunday,” said XTB analyst Kathleen Brooks.
“While it will extend cuts for some key Opec members like Saudi Arabia and Russia well into 2025, it will also start to roll back some measures as soon as October, which is earlier than the market had expected,” she said.
European natural gas prices meanwhile jumped more than 10 per cent after the closure of a pipeline linking key producer Norway with Britain.
The Langeled pipeline was shut after “operational problems” occurred at the Sleipner Riser offshore platform that will require repair work, said Randi Viksund, spokeswoman for the Norwegian pipeline operator Gassco.
Europe’s benchmark contract for natural gas reached 38.70 euros per megawatt hour before easing to 37.15 euros in afternoon trading. That remains far below 2022 levels struck after Russia’s Ukraine invasion.
Equities mostly higher
Among stock markets, European indexes were broadly higher and Wall Street saw gains at the open except for the Dow, which treaded water after leading a late-session rally on Friday.
Pre-weekend news that the personal consumption expenditures (PCE) index – the Fed’s preferred measure of inflation – slowed in April to the lowest level since December provided a boost to sentiment after equity weakness last week.
“Despite some rocky sessions which saw some sharp sell-offs, May was strongly positive” for stocks, said David Morrison, senior analyst at Trade Nation.
But a contraction in US manufacturing activity in May for the second straight month, based on an index compiled by the Institute for Supply Management, shifted investor focus from inflation to the risk of dampened demand.
It marked a continuation of a manufacturing slump that started in April, after a positive reading in March had snapped 16 months of contraction.
“The selling was triggered by ISM manufacturing PMI data, which showed the small expansion we saw in March was just a one-off,” said Fawad Razaqzada, a market analyst at StoneX.
Attention now turns to Friday’s release of US jobs data, as Fed officials have said looser monetary policy will depend on signs that tightness in the job market, which can fuel wage growth, is easing.
Before then, the European Central Bank is widely expected to begin cutting rates at its meeting Thursday even though inflation remains above the bank’s target of two percent.
“If so, this will be the first time ever that it has led the US Federal Reserve in easing monetary policy,” Morrison said.
Asian investors started June in a buoyant mood, pushing Hong Kong solidly higher thanks to a surge in Chinese tech firms, while Tokyo, Sydney and Seoul also posted gains though Shanghai edged lower.
In Asia, Mumbai saw strong gains on expectations that India’s Prime Minister Narendra Modi would secure a third term, potentially leading to further economy-boosting measures.