Oil edged lower as investors weighed troubling economic data from around the world against OPEC’s extension of output cuts into 2020.
Futures continued a retreat that began during the previous day’s session in New York. 7
While OPEC ministers agreed to maintain production curbs for nine months, a slew of disappointing manufacturing reports from the U.S., China and Europe undermined faith in oil demand. Trade concerns also resurfaced after Washington proposed more tariffs on EU goods in retaliation against European aircraft subsidies.
Oil has gained about 15% since mid-June as tensions escalated in the Middle East and on signs of progress in resolving the U.S.-China trade war. The decision by the Organization of Petroleum Exporting Countries to extend cuts needs to be ratified by non-OPEC allies on Tuesday and comes as market watchers including the International Energy Agency peg back forecasts for demand amid sluggish growth in China and India.
“Prices of commodities are down today as sluggish global economic indicators have stoked concerns over weakening growth, outweighing the nine-month extension of OPEC’s output-cut deal,” said Kim Kwangrae, a commodities analyst at Samsung Futures Inc. in Seoul. “Markets are still looking out for details of OPEC’s agreement.”
The OPEC agreement raises the prospect that Brent crude prices exceed Goldman Sachs Group Inc.’s forecasts for the rest of this year, set at $65.50 a barrel in the third quarter and $62 in the fourth, bank analysts including Damien Courvalin said in an emailed research note. The price support, though, will prove “transient” as it will draw a supply response from other drillers, leading to downside risks to the bank’s 2020 forecast of $60 a barrel.
Brent for September settlement slipped 5 cents to $65.01 on the ICE Futures Europe Exchange. The contract added 0.5% on Monday. The global benchmark crude was at a $5.98 premium to WTI for the same month.
The structure of the Brent crude market suggests futures investors may be losing faith that the OPEC+ extension will be enough to stave off a looming oil surplus as demand wanes.
The premium of front-month futures over the December contract was at 78 cents a barrel, near the smallest gap in three months. That compares with $1.58 in mid-May. A shrinking premium, or backwardation, indicates a weakening near-term market.
While ministers agreed in Vienna to extend the cuts, a news conference was delayed for hours due to lengthy discussions behind closed doors about a proposed charter intended to make OPEC and non-OPEC cooperation more formal. Iran initially flagged concerns about the proposal, but its oil minister later told reporters the nation had secured the changes that it wanted.
A gauge of U.S. factory activity fell for a third month in June. The Institute for Supply Management index dropped to 51.7, the weakest level since October 2016. That came after the Caixin China PMI Manufacturing measure dipped below 50 for the first time in four months.
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