February 8, 2023

Oil prices rise after OPEC+ maintains production cut targets, and China eases COVID restrictions

Oil drops below $80 as demand uncertainties deepen

  • Brent crude is below $80 a barrel for the first time since January 6
  • The lowest level for WTI futures contracts since December 27, 2021
  • Bets on higher interest rates boost the US dollar
  • Data from China and Europe point to economic weakness
  • US crude inventories fell

NEW YORK (Reuters) – Global oil prices fell below $80 a barrel for the first time since January on Tuesday, continuing a downward trend, as rising concerns about global demand offset any upward effects of a European Union-led cap on Russian oil prices. sales.

Brent crude futures fell $3.66, or 4.4 percent, to $79.02 a barrel at 1:25 pm EST. [1825 GMT]West Texas Intermediate crude, its lowest since Jan. 4, fell $3.23, or 4.2%, to $73.70, the lowest level this year.

“In this market, the sentiment is more negative,” said Eli Tesfaye, senior market analyst at RJO Futures. “We could be looking at $60 a barrel WTI the way things are going. I think the 80s will be a new high, and I would be very surprised to see any higher than that.”

Service sector activity in China hit a six-month low, and European economies slowed due to rising energy costs and higher interest rates.

If the current declines continue, Brent crude will post its biggest one-day drop since late September.

On Monday, both Brent and West Texas Intermediate crude oil futures posted their biggest daily decline in two weeks after US services industry data pointed to the strength of the US economy and led expectations of higher interest rates than previously expected.

The US dollar index fell on Tuesday, but was still supported by bets on rising interest rates, after the largest rise in two weeks on Monday.

A stronger dollar makes dollar-denominated oil more expensive for buyers who hold other currencies, reducing demand.

In China, more cities are easing restrictions related to COVID-19, which has raised expectations of increased demand in the world’s largest oil importer, although it was not enough to rally futures contracts.

US Crude Oil Inventories are expected to have declined last week. The American Petroleum Institute’s weekly report is due later on Tuesday, followed by government data on Wednesday.

“Oil markets are likely to remain volatile in the near term, driven by the Covid headlines in China and central bank policies in the US and Europe,” said UBS analyst Giovanni Stonovo.

The market was also weighing the production impact of the $60 per barrel cap on Russian crude imposed by the Group of Seven countries, the European Union and Australia. So far, there has been “a lack of impact on Russian flows,” said Matt Smith, chief oil analyst at Kpler.

“Russian exports and offshore production are not declining. Along with fears of further price hikes, crude oil is drifting in the direction of risk off in broader markets,” Smith said.

Russia has said it will not sell oil to anyone who adheres to the price ceiling. Russia’s production of oil and gas condensate in January-November rose 2.2% year-on-year to 488 million tons, according to Deputy Prime Minister Alexander Novak, who expects a slight drop in production after the latest sanctions.

Additional reporting by Shariq Khan, additionally by Rowena Edwards and The Moyu Show; Editing by Barbara Lewis and Mark Potter

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