Oil Down as OPEC Factions Surface

Oil prices came under further pressure yesterday, sliding to their lowest level in four months following supply-side announcements from OPEC.

While OPEC announced an extension to their cuts to 2025, eight of the countries will be able to voluntarily withdraw from the cuts around October.

This is expected to add a further half a million barrels of oil a day to global supply, gradually building to just under two million barrels a day by this time next year.

With economic pressures building on many of OPEC’s member states, many have pushed for the cartel to ease its cuts so they can boost output. OPEC’s existing cuts are the equivalent of around 6% of global demand.

At the back end of last year for example, a friction grew in OPEC with Angola and Nigeria being averse to keeping output in line with lower targets. Earlier last June, the Saudi Energy Minister Prince Abdulaziz bin Salman applied significant pressure on Angola, Congo and Nigeria to accept the cuts, but its thought some produced over the quota as economic conditions worsened.

However, with government budget deficits stretched, its thought that members need to sell at $80 dollars per barrel to balance their books.

As OPEC factions come to the surface, it’s worth noting that the groups share of oil output has steadily declined over the years, having fallen from 33% in 2018 to 27% last year.

This morning, WTI crude futures slipped to around $73 dollars per barrel, following five consecutive days in the red.

According to the US National Oceanic and Atmospheric Administration, the Atlantic has entered hurricane season. The administration is now predicting between 17-25 cyclones to hit through to November as warm water from the Gulf of Mexico and the African coast looks set to create a storm. Moreover, global warming means that more moisture can be held in the air, allowing for such storms to become more powerful and destructive.

As Bloomberg’s Brian Sullivan writes “Having a sense of whether a season was shaping up to be particularly active […] provided helpful planning information to people living in hurricane-prone regions and governments.”

As offshore rigging has become larger in the Gulf of Mexico for example, the impact of hurricanes hitting that area has far reaching implications.

UK retail sales from the BRC showed signs of a ‘mild recovery’ in May as consumers increased spending on DIY equipment and clothing around the bank holidays.

Total retail sales increased 0.7% on an annualised basis, well above the three-month average of 0.3%.

This morning’s print follows figures for April where against forecasts of 1.6% growth on an annualised basis, retail sales sank 4.4%. Here, the early easter and poor weather was cited as a key reason for fall in spending.

As we enter into summer, the BRC’s CEO said that “retailers remain optimistic that major events such as the Euros and the Olympics will bolster consumer confidence this summer.”