Oil Holds Decline as Macro Concerns Outweigh OPEC+ Supply Cuts

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Crude has been on a slow-motion ascent, helped by OPEC+’s limiting of supply and tensions in the Middle East.

Oil held a decline as signs of macroeconomic weakness — especially in the biggest importer China — eclipsed OPEC+’s widely expected extension of output cuts.

Global benchmark Brent was near $83 a barrel after slipping 0.9% on Monday, while West Texas Intermediate traded under $79. Wider markets remained subdued ahead of the release of US jobs data and remarks from Federal Reserve officials, with a dour outlook for China also clouding the outlook.


Crude has been on a slow-motion ascent that has seen Brent gain around 7% this year, bolstered by tensions in the Middle East and OPEC+’s limiting of supply. That optimism has been tempered by strong production from outside of the cartel, a shaky demand outlook in China and the paring back of expectations for when central banks will start monetary easing.

China set its annual growth target at around 5%, raising expectations for officials to unleash more stimulus as they try to lift confidence in a slowing economy. The nation also set a more ambitious target for reducing the energy needed for economic expansion, or energy intensity, this year.

The growth target “is a higher bar insofar that China loses the tailwinds of a post-pandemic rebound and a favorable base,” said Vishnu Varathan, Asia head of economics and strategy for Mizuho Bank Ltd. in Singapore. Oil could find support “if government spending is mostly going toward industry, where oil sensitivities are higher,” he said.

Negotiations for a pause in the fighting in the Israel-Hamas war remain bogged down. Meanwhile, another container vessel — the MSC Sky II — was attacked in the Red Sea by Yemen-based Houthi rebels.

OPEC and its allies on Sunday extended their roughly 2 million-barrel-a-day reduction through the end of June, in a move that had been widely anticipated. The group’s cutbacks will be gradually unwound subject to market conditions after that, OPEC’s Secretariat said.

©2024 Bloomberg L.P.

By Yongchang Chin


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