The price of oil has fallen significantly this week. The price fell sharply after oil cartel OPEC+ announced its new policy. In addition, there appears to be a surplus of oil because supply and demand are out of balance.
The oil price has taken a significant step downward. On Thursday, May 30, oil traded at $81,86 per barrel. On Tuesday, June 4, the oil price had fallen sharply. On that day, the price decreased to $77,52.
The decline in the oil market was set in motion after the meeting of the OPEC+ oil cartel. At first there seemed little reason to do so, as the cartel decided to maintain the voluntary restriction of supply. Since 2022, the cartel has lowered its production targets by 5,86 million barrels per day. In the countries' opinion, demand is still too low to aim for a higher supply.
The fact that the market has found its way down is because the cartel has opened the door to higher targets. Under current agreements, the targets will remain 3,66 million lower until the end of the year and the reduction of 2,2 million barrels per day will remain in effect until September. The 2,2 million barrel reduction will be phased out between October 2024 and September 2025. Although several countries had objected to the low targets, according to sources close to the fire, the market expected OPEC+ to maintain the lower targets. That's why it came as a surprise that the cartel is reaching out to the rebellious countries. The market expects that an additional 500.000 barrels per day will be available in December.
American market remains unbalanced
In addition, it remains difficult for the American oil sector to keep its reserves in balance. After last week's sharp decline of 6,5 million barrels, commercial reserves increased again by 4 million barrels, according to data from the American petroleum institute API. Reuters' flagship weekly survey shows experts had expected oil reserves to fall by 1,9 million barrels.
Partly due to the situation in which supply is predominantly greater than demand, American traders are reconsidering their positions on the oil market, according to American economic media. Due to the structural overproduction of oil, confidence in demand is on the low side. In addition, anonymous traders tell CNBC that Asian demand is much lower than initially expected. All these factors give traders the idea that there is international oversupply. However, the question is whether prices will remain so low. As a rule, the demand for oil increases in the summer, as there are more flights during that period. The market expects that the surplus oil will eventually find a buyer.
The diesel price followed the price of oil and fell sharply this week. On Thursday, May 30, diesel traded for €127,22 per 100 liters. On Tuesday, June 4, the price fell to €123,34. The price has now risen slightly to €124,08.