By Adedapo Adesanya
Oil prices fell more than 2 per cent on Monday as Saudi Arabia is reportedly leading a coalition that supports easing production cuts in August on expected increased demand.
The international crude benchmark, Brent crude, dropped 98 cents or 2.27 per cent to sell at $42.26 per barrel, while the US West Texas Intermediate (WTI) crude lost 95 cents or 2.43 per cent to settle at $39.60 per barrel.
For the past three months, the reduction of oil production by 9.7 million barrels daily from the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) have brought prices back from the brink.
Now, the market is reacting as OPEC+ members are expected to ease their production cuts to 7.7 million barrels per day after a recovery in global oil demand.
The group will have to tread carefully to avoid triggering a new price collapse when it begins to reverse those reductions.
Oil prices had taken a fall early in the year after a decline in the demand for the product from China, which shut parts of its economy due to the spreading coronavirus.
A price war between Saudi Arabia and Russia also made the situation worse, and in March, oil took a sharp leg down as the U.S. and Europe took steps to lock down economic activity. Things worsened in April until the 23-producer group came together to reduce production, brining stability to the market in May.
The Joint Ministerial Monitoring Committee, which reviews OPEC+ production, will meet on Wednesday and will consider whether the group should keep 9.7 million barrels a day off the market or roll that back by about 2 million barrels a day, a move supported by OPEC’s largest producer, Saudi Arabia.
Also affecting prices on Monday was the rise in COVID-19 cases in the US. The virus has seen a resurgence in Asia, which could knock crude demand and oil prices back down again.
The World Health Organization (WHO) reported a record daily increase in global coronavirus cases on Sunday, with the total up by more than 230,000.
In the United States alone, infections surged over the weekend as Florida reported an increase of more than 15,000 new cases in 24 hours, a record for any state. This poses a bigger threat especially now that producers are looking to taper cuts, raising worries about oversupply.
The International Energy Agency (IEA) said last week that the worst effects of the coronavirus on oil demand have passed, but the impact will linger.
It said oil demand would be down by 5.1 million barrels a day in the second half of 2020. While that’s less than half of the 10.8 million drops in demand in the first half, the rise in oil prices could entice more producers to add oil to the market.
Dipo Olowookere