Oil prices dropped on Monday as the OPEC+ coalition of major crude producers indicated plans to begin unwinding output cuts later this year.
This development, coupled with weaker-than-expected US manufacturing data, has exacerbated concerns over global oil demand.
The decline in oil prices pulled stock indices back from earlier highs, which were initially buoyed by hopes that easing inflation could prompt the Federal Reserve to cut interest rates later this year.
The price of Brent crude, the international benchmark, fell more than two percent, dipping below $80 a barrel for the first time since February.
The slide followed an announcement by Saudi-led OPEC and its Russian-led allies on Sunday that they would maintain current output levels but start to restore production from October, earlier than anticipated by the market.
“This deal looks to draw a line under attempts to drive energy prices sharply higher for the time being,” said Joshua Mahony, chief market analyst at Scope Markets.
XTB analyst Kathleen Brooks noted, “OPEC+ surprised the market when it announced its decision on production quotas on Sunday.
While it will extend cuts for some key OPEC members like Saudi Arabia and Russia well into 2025, it will also start to roll back some measures as soon as October, which is earlier than the market had expected.”
Meanwhile, European natural gas prices surged over 10 percent following the shutdown of the Langeled pipeline, which links key producer Norway with Britain.
The closure was due to “operational problems” at the Sleipner Riser offshore platform, requiring repair work, according to Randi Viksund, spokeswoman for Norwegian pipeline operator Gassco.
Europe’s benchmark contract for natural gas peaked at 38.70 euros per megawatt hour before settling at 37.15 euros in afternoon trading, still far below the levels seen in 2022 after Russia’s invasion of Ukraine.
Equities Mostly Higher
European stock markets were broadly higher, with Wall Street seeing gains at the open, except for the Dow, which remained flat after leading a late-session rally on Friday.
Positive sentiment was bolstered by news that the personal consumption expenditures (PCE) index – the Fed’s preferred measure of inflation – slowed in April to its lowest level since December.
“Despite some rocky sessions which saw some sharp sell-offs, May was strongly positive for stocks,” said David Morrison, senior analyst at Trade Nation.
However, investor focus shifted from inflation to concerns over dampened demand after a contraction in US manufacturing activity in May for the second consecutive month, according to an index compiled by the Institute for Supply Management.
This marked a continuation of a manufacturing slump that started in April, following a brief positive reading in March that ended 16 months of contraction.
“The selling was triggered by ISM manufacturing PMI data, which showed the small expansion we saw in March was just a one-off,” said Fawad Razaqzada, a market analyst at StoneX.
Attention now turns to Friday’s release of US jobs data, as Federal Reserve officials have indicated that looser monetary policy will depend on signs of easing tightness in the job market, which can drive wage growth.
Before then, the European Central Bank is widely expected to begin cutting rates at its meeting on Thursday, despite inflation remaining above the bank’s target of two percent.
“If so, this will be the first time ever that it has led the US Federal Reserve in easing monetary policy,” Morrison added.
In Asia, markets started June on a positive note, with Hong Kong rising significantly due to a surge in Chinese tech firms.
Tokyo, Sydney, and Seoul also posted gains, though Shanghai edged lower.
Mumbai saw strong gains on expectations that India’s Prime Minister Narendra Modi would secure a third term, potentially leading to further economy-boosting measures.
