Oil drops as flows in Hormuz persist and Opec+ flags more supply

[SINGAPORE] Oil fell as energy flows through the Strait of Hormuz persisted and Opec+ signalled higher supplies, fanning concerns about a potential glut.

Brent dropped below US$72 a barrel, while West Texas Intermediate was near US$69. Oil and gas shipping along a US-protected corridor in the waterway showed signs of recovering on Sunday (Jul 5), a day after a batch of vessels had performed unexplained U-turns and detours in the vital energy corridor.

Separately, major Opec+ members agreed to another modest increase in collective quotas for next month, adding to the prospect of more supply eventually hitting the market. Seven nations led by Saudi Arabia and Russia agreed to add 188,000 barrels a day, rolling back curbs made a few years ago.

Brent crude collapsed by 30 per cent in the second quarter as Washington and Teheran agreed to an interim peace deal, clearing the way for a rapid – even if yet incomplete – resumption of traffic via Hormuz. Against that backdrop, Wall Street banks have forecast that prices have scope to slump further this half, with Citigroup flagging the possibility of a return to US$60 by year-end.

In signs that output is topping demand, timespreads for benchmarks Brent and Dubai have flipped into a bearish contango pattern – when prompt contracts are at a discount to longer-dated ones.

Many grades on the physical market are also trading at prices cheaper than underlying benchmarks. BLOOMBERG