Oil dropped to the lowest in more than three months as the market flashed signs of weakness, despite expectations for OPEC+ to continue its output cuts.

Brent crude dipped below US$81 a barrel, while West Texas Intermediate declined near to $76. Both benchmarks are set for a weekly loss. The Memorial Day weekend is typically seen as the start of the peak driving period in the U.S., boosting gasoline consumption, and investors will be watching to gauge the demand outlook.

Crude is still higher this year, partly because of OPEC+ production curbs, but futures have eased since mid-April. The prompt spread for Brent was close to slipping into a bearish contango structure earlier this week, indicating ample supply, while money managers have trimmed their bets on rising prices.

“There’s definitely a bearish sentiment in the market,” said Arne Lohmann Rasmussen, head of research at A/S Global Risk Management. “We’re seeing a pricing out of the geopolitical premium and there’s growing concern on the supply and demand balance.”

The OPEC+ alliance meets on June 2 and is widely expected to prolong output cuts into the second half of 2024. The group has been keeping roughly 2 million barrels a day offline this year. Its decision to hold the meeting online supports the expectation of a rollover of cuts, according to Viktor Katona, head crude analyst at market intelligence firm Kpler Ltd.

“The market has fully priced in that OPEC will roll over the cuts,” said Rasmussen. But prolonging the cuts will likely result in a tighter oil market in the third quarter, which traders seem unprepared for, he added.

Prices:

• Brent for July settlement was steady at $80.72 a barrel at 10:33 a.m. in London after closing at the lowest level since Feb. 7 on Thursday. The prompt spread was 26 cents in backwardation, compared with 65 cents at the start of the month.
• WTI for July delivery was little changed at $76.23 a barrel.