Oil edged lower as additional Covid-related lockdowns in China heightened risk-off sentiment across markets, halting the rally that followed the OPEC+ meeting earlier this week.
(Bloomberg) — Oil edged lower as additional Covid-related lockdowns in China heightened risk-off sentiment across markets, halting the rally that followed the OPEC+ meeting earlier this week.
West Texas Intermediate slipped beneath $87 a barrel on Tuesday. Saudi Arabia cut oil prices for customers in Asia from a record as Covid-19 restrictions and sagging economies cool energy demand in the region. A stronger dollar also weighed on commodities priced in the currency. Crude is hovering close to the lower end of its recent trading range as virus-related lockdowns in China spread, reigniting fears of a global slowdown.
“Energy traders appear to be skeptical of any rallies as they digest a plethora of global economic challenges, a wrath of uncertainty to supplies, and looming crude demand destruction fears,” said Ed Moya, senior market analyst at Oanda.
On Monday, oil rallied over $90 a barrel during the US holiday as the Organization of Petroleum Exporting Countries and allies including Russia agreed to shave a modest 100,000 barrels a day off production.
Oil’s drop in the summer months is the latest chapter of a tumultuous year, with prices driven higher in the first half by Russia’s invasion of Ukraine, then undermined as central banks shifted tack and Moscow managed to keep most exports flowing. Crude’s recent slump prompted OPEC+ to cut its production for the first time in more than a year, a sign the production group is serious about managing global markets.
“Fundamentally we’re probably moving in the right direction in terms of calming the oil market, but all of that friction out there related to Russia seems like it’s only going in one direction,” Jeff Brown, president of consultant FGE, said in a Bloomberg TV Interview. “OPEC is essentially signaling that we don’t like $90 a barrel. They’re pretty much at production limits, so let’s defend a high price.”
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.”
Oil traders are also wrestling with the growing energy crisis in Europe. Governments are patching together emergency measures to support utilities amid concerns that companies will buckle under the weight of growing margin calls.
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