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Oil prices fell more than $1 a barrel on Monday after the OPEC+ group of producers overcame internal divisions and agreed to boost output, sparking some concerns about a crude surplus as Covid-19 infections continue to rise in many countries.
Brent crude was down $1.08, or 1.5%, at $72.51 a barrel by 4.20am, after falling nearly 3% last week. US oil was down $1.01c, or 1.4%, at $70.80 a barrel, having declined almost 4% last week.
OPEC+ ministers agreed on Sunday to increase oil supply from August to cool prices that earlier this month climbed to the highest in about 2½ years as the global economy recovers from the Covid-19 pandemic.
The group, which includes members of oil cartel OPEC and allies such as Russia, agreed new production shares from May 2022.
“Oil prices may continue to gyrate in the coming weeks,” Goldman Sachs said after the agreement.
However, the US investment bank said it remains bullish on the outlook for oil and the agreement was in line with its view that producers “should focus on maintaining a tight physical market all the while guiding for higher future capacity and disincentivising competing investments”.
It said the OPEC+ deal represented $2 “upside” to its summer forecast for Brent to reach $80 a barrel and $5 upside on its outlook for the international benchmark to average $75 a barrel next year.
To overcome internal divisions, OPEC+ agreed to new production quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq.
“This agreement should give market participants comfort that the group is not headed for a messy break-up and will not be opening up the production floodgates soon,” RBC Capital Markets said in a note.
The group last year cut output by a record 10-million barrels per day (bpd) amid an evaporation in demand that the pandemic developed, prompting a collapse in prices with US oil at one point falling in negative territory.
It has gradually brought back some supply, leaving it with a reduction of about 5.8-million barrels a day.
