OPEC+production increase triggers market panic and signals of weak global demand emerge

2024-06-09 2346

    Against the backdrop of a slowdown in global economic activity, the crude oil market has once again become the focus of investor attention. The recent decision of OPEC+has sparked widespread discussions in the market, with the decision to extend most of the oil production reduction agreements until 2025, while leaving room for some member countries to gradually cancel voluntary production reduction agreements starting from October this year. This decision has raised concerns in the market about unstable demand, leading to a drop of over $1 in oil prices on Tuesday.

    The logic behind the decline in oil prices

    Brent crude oil futures fell $1.11, a decrease of 1.4%, to $77.25 per barrel, continuing the four month low of the previous trading day. West Texas Intermediate crude oil futures in the United States also fell $1.16, or 1.55%, to $73.07 per barrel. This indicates that the market's response to OPEC+'s decision to increase production is negative, especially as signs of weak global demand have emerged.

    Daily trend chart of Brent crude oil and WTI crude oil

    The Decision of OPEC+and Market Expectations

    The decision of OPEC+seems to be inconsistent with market expectations. Tamas Varga, an analyst at a well-known institution, said, "The market reaction is discouraging anyone who produces oil and brings joy to consumers." This reflects market concerns about OPEC+'s decision to increase production, especially in the context of a global economic slowdown.

    Signal of weak global demand

    Traders are already concerned that high interest rates are hindering global economic activity, and the production reduction agreement planned to be lifted in October has increased concerns about oversupply. The continued bleak signals from major economies such as the United States and Europe indicate that their demand for oil may not be as healthy as expected for the remainder of this year.

    The role of non OPEC oil producing countries

    In addition, the supply of non OPEC oil producing countries such as the United States is also increasing, which may further exert downward pressure on oil prices. IG market strategist Yeap Jun Rong pointed out, "In the context of the prevailing belief that 'bad news is bad news', further evidence of economic weakness may lead to a decline in oil prices, paving the way for a retest of the one month low of $72."

    Analyst's perspective

    Karsten Frisch, an analyst at Deutsche Bank, emphasized the importance of oil demand in the coming quarters, which he believes will have a significant impact on oil prices. This indicates that analysts are closely monitoring the dynamics of the global economy and how they affect oil demand and prices.

    In summary, the production increase decision of OPEC+interacts with concerns about weak global demand, leading to a decline in oil prices. The perspectives and technical analysis of analysts point to a possible downward trend in oil prices. However, the market still needs to pay attention to the upcoming US inventory and product supply data, which will provide more information on demand dynamics. In this ever-changing market, investors need to remain vigilant, closely monitor global economic indicators and supply and demand dynamics, in order to make wise investment decisions.

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