Oil prices declined by up to 1% in Asian trading on Tuesday, extending losses from the previous session’s four-month low as investors remained concerned about increasing supply later this year amid signs of weakening U.S. demand.
Brent crude futures dropped 73 cents, or 0.93%, to $77.63 a barrel by 0638 GMT. This followed Brent’s close below $80 for the first time since February 7, after falling more than 3% on Monday.
U.S. West Texas Intermediate (WTI) crude futures decreased by 87 cents, or 1.17%, to $73.35 a barrel. WTI also settled near a four-month low on Monday after a 3.6% decline.
The Organization of the Petroleum Exporting Countries and allies led by Russia, collectively known as OPEC+, agreed on Sunday to extend most of their oil output cuts into 2025. However, they allowed for voluntary cuts from eight members to be gradually reduced starting in October 2024.
“Oil prices have been facing a double whammy lately, with supply concerns exacerbated by OPEC+ guidance to start unwinding some production cuts from October 2024, while demand conditions have not been well-supported by weaker-than-expected U.S. manufacturing activities,” IG market strategist Yeap Jun Rong commented via email.
U.S. manufacturing activity slowed for the second consecutive month in May, and construction spending unexpectedly declined for a second month in April due to decreases in non-residential activity. Both factors could contribute to weaker oil and fuel demand.
“With the ‘bad news is bad news’ mindset prevailing, further economic weakness may lead oil prices lower, potentially paving the way for a retest of the lower end of its month-long range at the $72.00 level,” Yeap added.
Signs of weakening demand growth have impacted oil prices in recent months, with U.S. fuel consumption data being closely monitored. The average gasoline price in the United States fell by 5.8 cents per gallon to $3.50 per gallon on Monday, according to GasBuddy data.
The U.S. government will release inventory and product supplied data on Wednesday. Product supplied, considered a proxy for demand, will indicate how much gasoline was consumed around the Memorial Day weekend, which marks the start of the U.S. driving season.
Concerns about these macroeconomic factors from the world’s top oil consumer are likely to continue influencing prices in the near term, according to some analysts.
“The broader market is increasingly concerned about the U.S. consumer, U.S. end-user oil demand (indicators of which have suffered from data accuracy issues in May but remain underwhelming), and its global implications,” Sparta Commodities analyst Neil Crosby noted in a weekly client update.
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