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Global benchmark Brent slid below $94 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.
Though Saudi Arabia said after the decision that the group was willing to take additional action to support the oil market if that were needed, crude is hovering close to the lower end of its recent trading range. Virus-related lockdowns in China are also spreading, re-igniting fears of a global slowdown that have weighed on oil prices in recent months despite efforts by G-7 nations to cap the price of Russian exports.
“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.”
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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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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