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Oil sinks as demand fears take steam out of OPEC-led rally

Commodities Sep 06, 2022 03:10PM ET
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By Laila Kearney

NEW YORK (Reuters) - Oil prices fell on Tuesday as concern returned about the prospect of more interest rate hikes and COVID-19 lockdowns weakening fuel demand, reversing a two-day rally on OPEC+'s first output target cut since 2020.

Brent crude settled at $92.83 a barrel, losing $2.91, or 3%. U.S. West Texas Intermediate (WTI) fell from Monday's trading to settle at $86.88 a barrel, up 1 cent from Friday's close.

The U.S. benchmark had been trading since Sunday without settlement due to the Labor Day holiday. WTI prices are down more than 2% from the usual time of settlement on Monday, Refinitiv Eikon data show.

"The OPEC+ news is now in the market and the focus has temporarily shifted to economic and inflationary concerns amongst which the two relevant factors are the extended COVID lockdowns in China and Thursday's ECB rate decision," said Tamas Varga of oil broker PVM.

China has eased some COVID-19 curbs but extended lockdowns in Chengdu, which added to worries that high inflation and interest rate hikes will hit oil demand. The European Central Bank is widely expected to lift rates sharply when it meets on Thursday. [MKTS/GLOB]

A stronger U.S. dollar, which was up about 0.6% on better-than-expected U.S. services industry data, also put pressure on oil prices.

The reading on services sector activity fed into expectations that the Federal Reserve will keep raising interest rates, which could trigger a recession and bring down fuel demand.

"Basically, it's all about tight supplies and concerns about an economic slowdown that might happen in the future," said Phil Flynn, an analyst at Price Futures group in Chicago. "This has created a lot of uncertainty in the market."

On the supply side, signs that an agreement to resurrect Iran's nuclear deal with world powers was less imminent challenged crude prices by reducing the odds that OPEC+ would move forward with its output reduction plan, said Bob Yawger, director of energy futures at Mizuho.

The European Union's foreign policy chief said on Monday he was less hopeful about a quick revival of the deal.

"You might not get an OPEC production cut if the Iranians don't bring barrels to the market," Yawger said.

The Organization of Petroleum Exporting Countries and allies led by Russia, known as OPEC+, decided on Monday to cut their October output target by 100,000 barrels per day (bpd). Prices rose on Friday ahead of the meeting and after the decision.

As a result of the Labor Day holiday, weekly U.S. inventory reports from the American Petroleum Institute and Energy Information Administration will be released on Wednesday and Thursday, a day later than usual.

Oil sinks as demand fears take steam out of OPEC-led rally
 

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Comments (6)
Dung Ng Kim
Dung Ng Kim Sep 06, 2022 2:13PM ET
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Always same demand fear reason wtf.
Jose Marquez
Jose Marquez Sep 06, 2022 9:19AM ET
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80 ... octuber...
Joe Rizzuto
Joe Rizzuto Sep 06, 2022 8:45AM ET
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yes, the reduction in supply by opec+ was 'symbolic' and the message to biden, the u.s. and europe is 'gf* and pay up. we don't care if you freeze.' ...the time to fight back with force is coming.
Ken Roth
Ken Roth Sep 06, 2022 6:41AM ET
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When oil slides its demand fears if it rises its because opec cuts in target they are not even producing…manipulation or easy journalism?
Kevin Avila
Kevin Avila Sep 06, 2022 12:38AM ET
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Biden keeping OPEC happy… ffs
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Jo Riley
Jo Riley Sep 06, 2022 12:38AM ET
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Barani Krishnan  Oh.  And YOU know what's spinning around in Putin's, Biden's, & MbS's minds.  YOU know all the clues.
Barani Krishnan
Barani Krishnan Sep 06, 2022 12:38AM ET
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Jo Riley  It's what's happening in the market that matters first. Not what's going on in anyone's head. A virtually meaningless production cut doesn't cut it in times like these when the market is looking for stronger action. It's ridiculous then to say that Biden is making OPEC happy. Do not make nonsensical and politically-convenient remarks when you haven't an idea of what's going on in the market.
Lei Yi
Lei Yi Sep 06, 2022 12:38AM ET
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Barani Krishnan  You are the only one bashing everyone around everytime I read comment. And you talk mostly nonsense. On the 31th opec+ meeting, on a symbolic increase, oil managed to break a major support.
Barani Krishnan
Barani Krishnan Sep 06, 2022 12:38AM ET
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Lei Yi  I speak nonsense huh? Perhaps you should read the feedback from 90% of my readers to the columns I write on oil. What peeves me is the real nonsensical remarks like it's Biden fault or even Trump's when the market is larger than any individual. And there's good reason why the incremental increase from a month ago led to a break of major support. It's because of the multiple negative points from China's on-off Covid situation to the possibility of an Iran nuclear deal revival and global slowdown worries that had already been weighing on oil. So even a symbolic raise then mattered. The situation is quite different this time. A larger cut might be necessary right away or proof of mitigating demand will be needed. That's why crude prices are coming off their highs as of today's Asian trading.
Jo Riley
Jo Riley Sep 06, 2022 12:38AM ET
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Barani Krishnan  " It's what's happening in the market that matters first. Not what's going on in anyone's head."  ---   A foolish statement.  Putin decided to shut off the gas.  That AFFECTED the market.  The market reacted to Putin's decision and changed the price.  So what goes on in Putin's head matters a GREAT deal.
Barani Krishnan
Barani Krishnan Sep 05, 2022 9:54PM ET
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I said this was nothing but a B(S) cut. And the market is now voting it down :)
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Barani Krishnan
Barani Krishnan Sep 05, 2022 9:54PM ET
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Andrew Ulferts  The draining of the SPR is in response to the forced rationing of domestic production by the likes of Frank Machiarolla, Mike Wirth and Scott Sheffield who have turned the API into somewhat of a US version of OPEC by curtailing the one-time free market production of US crude. They keep using the B(S) that the administration is clamping down on fossils in every way when the opposite has been true ever since the Ukraine crisis broke out. The only caveat is don't drill on wildlife and conservation areas.
Andrew Ulferts
Andrew Ulferts Sep 05, 2022 9:54PM ET
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Barani Krishnan there are literally articles today stating that demand destruction is the only way out of the energy crisis. The FED is trying it’s hardest to ********the economy by driving us into a recession, the “news” is assaulting oil every. Single. Day. This is not a war of Oil Industry vs. the people, we like oil. If we didn’t we’d buy electeic cars. This is a war against oil by a few, very corrupt, elites across the globe. The oil players you mentioned will increase production when investment RETURNS to the industry. So scaring people away from it day after day is the CAUSE of the problem. Fact.
Andrew Ulferts
Andrew Ulferts Sep 05, 2022 9:54PM ET
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Andrew Ulferts I don’t swear, it may seem that way because the bot bleeped out the word dstroy
Barani Krishnan
Barani Krishnan Sep 05, 2022 9:54PM ET
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Andrew Ulferts  The fact remains that the oil lobby is greater than any other lobby in this universe and that has basically prevented any meaningful R&D and space for renewables to grow to par. It's true that renewables haven't reached the combustion rate of fossils to be a viable alternative. But the oil lobby has been working overtime to ensure the technology never gets there and becomes a force of disruption. It's amazing: the world's oldest industry just refuses to be disrupted. While F has become a dirty word to the green crowd, R has been circumvented at every turn by the oil lobby to ensure the continued hegemony of fossils.
Andrew Ulferts
Andrew Ulferts Sep 05, 2022 9:54PM ET
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