Oil drops on fears of oversupply as OPEC + prepares to increase production

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TOKYO (Reuters) – Oil prices fell on Monday amid oversupply concerns as OPEC and its allies cut production cuts in August and an increase in global COVID-19 cases indicates a recovery slower demand for fuel.

A 3D printed oil pump jack is seen in front of the Opec logo displayed in this illustration photo, April 14, 2020. REUTERS / Dado Ruvic / Illustration

Brent futures slipped 26 cents, or 0.6%, to $ 43.26 a barrel at 0253 GMT. US West Texas Intermediate (WTI) crude futures fell 29 cents, or 0.7%, to $ 39.98 a barrel.

Brent posted a fourth month of gains in July and U.S. crude posted a third, both of which fell from depths reached in April, when much of the world was stranded due to the coronavirus pandemic.

“Investors are worried about oversupply as OPEC + is set to start slashing production cuts this month and a rebound in oil prices from record lows is likely to encourage U.S. shale producers to increase their production, ”said Hiroyuki Kikukawa, general manager of research at Nissan Titles.

“In addition, fears of a resurgence of coronavirus cases weigh on the oil markets,” he said.

Oil production of the Organization of the Petroleum Exporting Countries increased by more than one million barrels per day in July as Saudi Arabia and other Gulf members end voluntary restrictions on additional supply in addition to an agreement led by OPEC.

Russia’s oil production in July remained unchanged from June levels, the country’s Energy Ministry said on Sunday.

OPEC +, a consortium of OPEC and its allies, including Russia, is expected to increase production in August, adding around 1.5 million bpd to global supply.

U.S. energy companies kept the number of oil and gas rigs at an all-time high, as the number of rigs fell for a fifth consecutive month, although July marked the smallest monthly decline.

Oil prices are expected to slow this year as the gradual easing of coronavirus restrictions spurs demand, though a second wave of COVID-19 could slow the pace of the recovery, a Reuters poll showed on Friday.

The Australian state of Victoria has declared a state of disaster and authorities in the Philippines have said they will impose further restrictions on Manila this week, reflecting concerns around the world over the pandemic being brought under control.

“To add to things, the US consumer market is entering the final weeks of peak driving season and with stabilizing mobility tracking data,” said Stephen Innes, chief global market strategist at AxiCorp, in a report.

“Unless there is a significant drop in the COVID-19 case count curve that is sufficient to reduce consumers’ fear of the virus and move mobility data upward, demand may not improve a lot from now on, ”he said.

Reporting by Yuka Obayashi; Edited by Dan Grebler and Richard Pullin

Our standards:Thomson Reuters Trust Principles.

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