Market Analysis

Oil prices continued to decline on Monday due to expectations of increased OPEC+ production starting in October, coupled with signs of weak demand in China and the U.S., the two largest oil consumers, raising concerns about future consumption growth.

By 0646 GMT, Brent crude futures had dropped 56 cents, or 0.7%, to $76.37 per barrel, while U.S. West Texas Intermediate (WTI) crude decreased by 45 cents, or 0.6%, to $73.10 per barrel.

These losses follow a 0.3% decrease for Brent last week and a 1.7% decline for WTI.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are expected to proceed with a planned increase in oil output starting in October, according to six sources from the group who spoke with Reuters.

Eight OPEC+ members are slated to boost output by 180,000 barrels per day (bpd) in October as part of a strategy to gradually ease their recent production cuts of 2.2 million bpd, while maintaining other cuts until the end of 2025.

"There are concerns that OPEC will go ahead with the output increase from October," said IG market analyst Tony Sycamore. "However, this outcome is likely dependent on price levels, particularly if WTI is closer to $80 than $70."

Both Brent and WTI have seen losses for two consecutive months as concerns over demand in the U.S. and China have overshadowed recent supply disruptions in Libya due to internal conflicts and tensions in the key oil-producing Middle East region related to the Israel-Gaza conflict.

Although Libyan exports remain halted, the Arabian Gulf Oil Company has resumed production at up to 120,000 bpd to meet domestic needs, according to engineers on Sunday, following the shutdown of most of the country's oilfields due to the factional standoff.

Further pessimism about Chinese demand emerged after an official survey revealed that manufacturing activity in August fell to a six-month low as factory gate prices declined and orders struggled, although a private survey on Monday, focusing on smaller, export-oriented companies, indicated signs of a tentative recovery in August.

"The weaker-than-expected China PMI released over the weekend intensifies concerns that China's economy may fail to meet its growth targets," Sycamore added.

In the U.S., oil consumption in June dropped to its lowest seasonal levels since the COVID-19 pandemic in 2020, according to data from the Energy Information Administration released on Friday.

ANZ analysts noted in a report, "We anticipate a slowdown in growth in 2025, driven by economic challenges in China and the U.S. We believe OPEC will have no option but to delay the phase-out of voluntary production cuts if it aims to sustain higher prices."

The number of active U.S. oil rigs remained unchanged at 483 last week, as reported by Baker Hughes in its weekly update.

Paraphrasing text from "Reuters" all rights reserved by the original author.