(Bloomberg) — Oil fell, with a post-OPEC+ meeting rally fizzling out, as traders weighed the group’s output cut as well as further lockdowns in China.
Global benchmark Brent slid toward $95 a barrel after ending almost 3% higher on Monday as the Organization of Petroleum Exporting Countries and allies including Russia agreed to shave a modest 100,000 barrels a day off production. After the surprise decision, Saudi Arabia said the group was willing to take additional action to support the oil market if that were needed.
Crude has slumped since early June, erasing all of the gains made after Russia invaded Ukraine, as signs of a global slowdown, tighter monetary policy and anti-virus lockdowns in China threatened to sap energy demand. That decline prompted OPEC+ to pivot to removing barrels from the global market, switching tack from restoring the supply cuts imposed during the pandemic.
Lockdowns in China are spreading. In addition to extended curbs in Chengdu, the capital city of Sichuan province, authorities imposed restriction in parts of Guiyang, a city of 6 million in the mountainous southern Guizhou province.
The OPEC+ cut “really is a non-event in terms of supply-demand,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. “So I suspect the market will continue to be dictated by demand concerns, particularly given more parts of China appear to have gone into lockdown.”
Brent’s widely watched time spreads have been volatile in recent weeks, buffeted by expectations of what would be agreed by OPEC+ as well as Europe’s deepening energy crisis. The prompt spread — the difference between its two nearest contracts — was $1.23 a barrel, down from $1.47 a week ago.
The first OPEC+ supply cut in more than a year showed the group is serious about managing crude markets and willing to take preemptive action, according to Saudi Arabia. “The simple tweak shows that we will be attentive, preemptive and pro-active,” Energy Minister Prince Abdulaziz bin Salman told Bloomberg.
The group’s move “signals a willingness to resume active market management to avert a major sell-off due to recession concerns or expectations of policy-driven supply increases,” RBC Capital Markets LLC analysts including Helima Croft said in a note. “They are seeking to put short-sellers on notice that they will not easily surrender the recent gains and go gently into the night.”
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