Oil Extends Losses on Oversupply Concerns, US Macros

VIENNA (DTN) -- Oil futures closest to expiration on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange fell by more than $1 bbl Tuesday morning, extending yesterday's steep losses sparked by amplified demand concerns in the U.S. and OPEC+ plans to raise production beginning in October.

Market sentiment turned markedly bearish after a month-long wait-and-see period in which prices traded in a narrow channel as more and more signs of lower-than-expected oil demand in OECD countries emerged and a potential recovery of the U.S. manufacturing seemed to be losing steam. Sunday's surprising announcement by eight OPEC+ members to start unwinding some 2.2 million bpd of voluntary output cuts raised concerns about the market shifting into oversupply by the end of the year.

The Institute of Supply Management's Manufacturing PMI for May, released yesterday, slid for a second month in a row, and at 48.7 -- the lowest monthly reading since February -- fell well short of expectations. This was followed by the Atlanta Federal Reserve's fifth consecutive downward revision to their Q2 U.S. GDP growth estimate, which was lowered from 2.7% to 1.8%. Just last Friday, the estimate stood at 3.5%.

Calendar spreads having considerably narrowed since early April reflected shifting supply-demand balance expectations, with the Brent prompt spread flirting with contango over the past week and the six-month spread dropping below $1.50 bbl, the smallest since early January. Near 8:00 a.m. EDT, WTI futures for July delivery fell $1.38 to trade near $72.84 bbl, and Brent for August delivery dropped $1.26 bbl to $77.10. RBOB for July delivery traded near $2.3192 gal, down $0.0164, and ULSD for July delivery fell $0.0214 gal to $2.2748.

Karim Bastati can be reached at karim.bastati@dtn.com