Crude-oil prices traded sharply lower early Tuesday for a second straight session as worries about the lack of compliance with a recent pact to cut production by a number of major producers pressured futures into negative territory.
Analyst at Goldman Sachs make the case that the global oil market still faces the challenge of absorbing excess supplies in order for prices to achieve a sustainable phase of normalization from the lows seen as a result of the coronavirus pandemic.
“The oil market only moved into deficit late May and still faces the daunting challenge of normalizing a billion barrels of excess inventories,” wrote Goldman’s researchers including Damien Courvalin, Callum Bruce, and Jeff Currie.
“With OPEC’s latest cut already more than priced in, we now forecast a pull-back in prices in coming weeks with our short-term Brent forecast of $35/bbl vs. spot prices of $43/bbl,” the analysts wrote.
Last weekend OPEC and allied nations agreed to extend a production cut of nearly 10 million barrels of oil a day through the end of July.
West Texas Intermediate crude for July delivery, the U.S. benchmark, lost 71 cents, or 1.8%, to reach $37.49 a barrel on the New York Mercantile Exchange, after falling 3.4% on Monday.
Global benchmark Brent oil for August delivery gave up 65 cents, or 1.6%, at $40.15 a barrel, following a 3.6% decline a day ago on ICE Futures Europe.
Although an extension of a global-production cut was achieved by OPEC and its allies, a group collectively known as OPEC+, Saudi Arabia, Kuwait and the United Arab Emirates are not intending to extend cuts of 1.18 million barrels per day they are currently making on top of that OPEC+ target, Reuters reported.
On top of that concerns persist that other non-OPEC members will drive production higher, including North American shale-oil producers.