Investing.com-- Oil prices fell to four-month lows Tuesday, as OPEC+ signaled it will begin tapering off its production cuts this year just as demand worries intensified following weak data from major oil consumer China.
At 14:17 ET (18:17 GMT), West Texas Intermediate crude futures dropped 1.1% to $73.40 a barrel, and Brent oil futures fell 0.9% to $77.63 a barrel. Both contracts slid over 3% on Monday, and were at their lowest level since early-February.
OPEC+ move to begin scaling back production cuts seen as bearish
The Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, announced after a weekend meeting that it will maintain 3.6 million barrels per day (bpd) of production cuts until the end of the year.
But the cartel but left room its members to gradually unwind 2.2 million bpd of voluntary cuts from the end of September 2024.
“The market was expecting them to remain in place until the end of the year. This saw Brent crude tumble… as investors weigh up rising supply against an uncertain economic backdrop,” analysts at ANZ wrote in a note.
OPEC+ made it clear that the return of these barrels to the market can be paused if market conditions do not allow for this additional supply," analysts at ING said, in a note. "However, one must question how long some members will be willing to hold a substantial amount of supply from the market and give market share away to non-OPEC+ producers."
Weak PMI data, mixed China cues spark demand fears
News of this potential increase in supply came as crude markets were already spooked by weak purchasing managers index data from the U.S., which showed manufacturing activity in the country contracted for a second consecutive month in May.
The reading raised concerns that sticky inflation and high interest rates were chipping away at economic activity in the world’s biggest fuel consumer, likely impacting future demand.
Focus this week is on key U.S. labor market readings from the country, which are expected to factor into the outlook for interest rates.
Fresh supply data on tap
The American Petroleum Institute issues its weekly estimate if U.S. crude stockpiles later in the session, ahead of the official reading on Wednesday.
In recent weeks, the data on product stockpiles including gasoline has dominated attention amid signs that of softer demand even as the energy-hungry summer period is underway.
(Ambar Warrick contributed to this article.)