WASHINGTON (dpa-AFX) - Crude oil declined sharply on Tuesday as excess supply concerns overrode the positivity from OPEC's surprise decision to pause production hikes for the first quarter of 2026.
WTI Crude Oil for December delivery was last seen trading down by $0.44 (or 0.72%) at $60.61 per barrel.
On Sunday, after a virtual meeting between its member-nations, the OPEC+ alliance agreed to implement a production hike of 137,000 barrels per day in December.
Along with that, the coalition decided to pause production increases in January, February, and March 2026 contrary to market expectations.
OPEC cited 'seasonality' and historically weaker demand in the first quarter of any year as the reason behind its decision. However, the decision by OPEC+ was also driven by oversupply concerns and reports of slow demand growth for 2025 and 2026 by International Energy Agency, last month. The IEA had projected a surplus of nearly 4 million barrels per day next year.
The OPEC+ alliance has collectively boosted their quotas by 2.9 million barrels per day this year to date, nearly 50% of the oil group's total 5.85 million bpd voluntary cuts. However, the cartel raised production by only 70-75% of its respective target.
Last month, the U.S. sanctioned two of Russia's largest oil corporations, Rosneft and Lukoil, in a bid to compel a ceasefire agreement with Ukraine.
Prior to that, U.S. President Donald Trump had warned of imposing 'penalty tariffs' to countries buying Russian oil. Not to earn the displeasure of Trump, major buyers of Russian oil, China, India and Turkey have already started looking for alternate suppliers.
In the ongoing Russia-Ukraine war, Ukraine has been targeting oil and energy installations in Russia and striking them successively, leading to the destruction of refineries and resulting in Russia's crude deliveries taking a plunge.
The recent upside strengthening of the U.S. dollar also mounted downward pressure on oil prices.
Traders also interpreted the decision by OPEC to halt production-increase as an acknowledgement of a near-term potential oversupply situation. Until now, OPEC has been brushing off concerns of excess oil flooding to the market.
In the U.S., the government shutdown that began on October 1 entered day number 35 today.
The U.S. Federal Reserve and the markets are now left to pore over only private data to get clues on the economy as the closure has blocked the release of official reports.
The Fed has instituted two rate-cuts this year. Fed officials are divided on another rate cut at their upcoming December 9-10 meeting.
Analysts feel that crude oil being a dollar-denominated commodity, the Fed's decision could impact the U.S. dollar and thereby oil prices in the short-term.
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