Oil prices fell sharply on Monday after OPEC+ overcame internal divisions and agreed to boost output, sparking concerns about a crude surplus as Covid-19 infections rise in many countries.
Brent crude was down $1.92, or 2.6%, at $71.67 a barrel by 1105 GMT. US oil was down $1.94, or 2.7%, at $69.87 a barrel.
OPEC+ ministers agreed on Sunday to increase oil supply from August to cool prices that this month hit their highest level in more than two years as the global economy recovers from the Covid-19 pandemic.
Members of the Organisation of the Petroleum Exporting Countries (OPEC) and allies such as Russia also agreed new production shares from May 2022.
“Longer-term, free and additional production capacities from OPEC+ countries are the key reason why we see oil moving lower again,” said Julius Baer analyst Carsten Menke.
“We remain confident that the oil market is in the final phase of its upcycle.”
However, Goldman Sachs said it remained 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.”
OPEC+ last year cut output by a record 10 million barrels per day (bpd) amid evaporation in demand the pandemic developed, prompting a collapse in prices with US oil futures at one point falling into negative territory.
OPEC+ producers have gradually eased their output curbs, which now stand at around 5.8 million bpd.
To overcome internal divisions, OPEC+ agreed new production quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq.
“Even with higher output, the market remains relatively tight,” ANZ Research said. “High frequency data is showing encouraging signs for oil, with US gasoline demand recently hitting a record high. This should limit the duration of the selling.”