Crude oil futures traded lower on Tuesday morning as the market felt that global supply could increase by the end of the year.

At 9.52 am on Tuesday, August Brent oil futures were at $77.75, down by 0.75 per cent, and July crude oil futures on WTI (West Texas Intermediate) were at $73.56, down by 0.89 per cent.

June crude oil futures were trading at ₹6,145 on the Multi Commodity Exchange (MCX) during initial trading, against the previous close of ₹6,181, down by 0.58 per cent, and July futures were trading at ₹6,159, against the previous close of ₹6,192, down by 0.53 per cent.

Market unhappy

On Sunday, the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, announced a production output cut of around 5.8 million barrels a day till 2025. This cut includes 3.66 million barrels a day of voluntary cuts that were set to expire at the end of 2024. Another round of around 2.2 million barrels a day cuts till September-end were part of the 5.8 million barrels a day announcement.

However, OPEC+ announced it woulkd maintain the production output cut of 3.6 million barrels a day till the end of 2024, and decided to phase out the 2.2 million barrels a day cut between October 2024 and September 2025. Following this, market players felt that the global supply of crude oil could increase later this year.

Warren Patterson, Head of Commodities Strategy, and Ewa Manthey, Commodities Strategist, said in ING Think’s Commodities Daily that price action in oil on Monday clearly showed that the market was disappointed by the decision taken by OPEC+ over the weekend.

ICE Brent settled almost 3.39 per cent lower on the day and below $79 a barrel -- a level last seen in February. While the extension of additional voluntary supply cuts into the third quarter of 2024 leaves the market in deficit over the upcoming quarter, the gradual return of 2.2 million barrels a day of supply from October 2024 through to September 2025, in addition to a 300,000 barrels a day higher production target for the UAE, risks leaving the market in surplus through 2025, they said in Commodities Daily.

“Our balance shows the unwinding of these additional voluntary cuts will leave the market in a small surplus next year. OPEC+ made it clear that the return of these barrels to the market can be paused if market conditions do not allow for this additional supply. However, one must question how long some members will be willing to hold a substantial amount of supply from the market and give market share away to non-OPEC+ producers. The various cuts from the group currently add up to almost 6 million barrels a day,” they said.

US manufacturing contracted

Stating that preliminary OPEC production numbers for May are starting to be released, they said Bloomberg’s survey shows that OPEC output averaged 26.96 million barrels a day in May, up 60,000 barrels a day month-on-month. The numbers show that Iraqi and UAE output was a combined 458,000 barrels a day above their target level. There are still no signs of Iraq compensating for its overproduction since the start of the year. The lack of compliance by some members only reinforces the view that OPEC+ could struggle to continue with full cuts into 2025 if needed, they said in ING Think’s Commodities Daily.

Meanwhile, the purchasing managers index data from the US showed manufacturing activity in that country contracted for the second consecutive month in May. This led to concerns in the market over the demand for commodities such as crude oil in the US.

Turmeric gains, cottonseed oilcake dips

June natural gas futures were trading at ₹229.90 on MCX, against the previous close of ₹225.20, up by 2.09 per cent.

On the National Commodities and Derivatives Exchange (NCDEX), June cottonseed oilcake contracts were trading at ₹2,668, against the previous close of ₹2,678, down by 0.37 per cent.

June turmeric (farmer polished) futures were trading at ₹17,300 on NCDEX, against the previous close of ₹17,236, up by 0.37 per cent.

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