Brent crude oil prices slumped more than 1.5 percent on Monday as traders factored in an expected output increase, which was agreed upon at the headquarters of the Organization of Petroleum Exporting Countries (OPEC) in Vienna on Friday.
In spite of this, analysts stated that global oil markets would likely stay relatively tight this year.
Brent crude futures were at $74.22 per barrel, lower 1.8 percent from their previous close.
US West Texas Intermediate crude futures were at $68.42 per barrel, lower 0.2 percent, backed more than Brent by a little drop in US drilling activity and a Canadian supply outage.
Price initially increased after the OPEC deal was announced late during the previous week as it was not witnessed bolstering supply by as much as others had anticipated.
OPEC and non-OPEC partners that include Russia have curbed output by 1.8 million barrels per day since last year to tight the market and spur demand for supplies.
The group has experienced outputs that were lower than their targeted cuts due to unforeseen disruptions like the cases of Venezuela and Angola. The output targets, according to the organization, will now be reversed by supply increases, especially from the OPEC leader Saudi Arabia. However, analysts cautioned that there is little space capacity for large-scale output increases.
“Saturday’s OPEC+ press conference provided more clarity on the decision to increase production, with guidance for a full 1 million bpd ramp-up in 2H18,” wrote Goldman Sachs in a note last Sunday.
“This is a larger increase than presented Friday although the goal remains to stabilize inventories, not generate a surplus,” added the US bank.
Dubai’s Emirates NBD commodity analyst Edward Bell said “any increase in production would be borne most significantly by Saudi Arabia, the UAE, and Kuwait.”
Pricing the Vienna agreement into the Market, Bell added that he was expecting prices “in a range between $65 and $70 per barrel for Brent for the remainder of the year.”
In the United States, US energy companies during the previous week cut one oil rig, making the first reduction in 12 weeks. It lowered the total rig count to 862, according to Baker Hughes on Friday.
The move put the rig count on track for its lowest monthly gain since declining two rigs in March, with just 3 rigs added so far in this month. On the other hand, the overall level is still one rig lower than that of March 2015 high from the previous week.