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Oil down as uncertainty over OPEC+ supply cuts, demand growth weigh

An aerial view shows a crude oil tanker at an oil terminal off Waidiao island in Zhoushan, Zhejiang province, China January 4, 2023. China Daily via REUTERS
Crude oil tanker in Zhoushan

Oil futures reversed course after rising briefly on Monday amid persistent pressure from the OPEC+ decision and uncertainty over global fuel demand growth, although the risk of supply disruptions from the Middle East conflict limited the losses.

Brent crude futures were down 0.9 per cent, or 73 cents, to $78.15 a barrel by 0735 GMT, while US West Texas Intermediate crude futures were at $73.43 a barrel, down 0.8 per cent, or 64 cents.

“Crude seems to be under continued pressure from the OPEC+ decision … Some degree of discounting of the deeper OPEC+ cuts is justified, but as of now, the crude complex has completely disregarded them,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.

Oil prices slumped more than 2 per cent last week on investor scepticism about the depth of supply cuts by the Organization of the Petroleum Exporting Countries and allies including Russia, together called OPEC+, and concern about sluggish global manufacturing activity.

OPEC+ cuts announced on Thursday were voluntary in nature, raising doubts about whether or not producers would fully implement them. Investors were also unsure about how the cuts would be measured.

Geopolitical considerations were also front and centre of investors’ minds as fighting resumed in Gaza. Three commercial vessels came under attack in international waters in the southern Red Sea, the US military said on Sunday, as Yemen’s Houthi group claimed drone and missile attacks on two Israeli vessels in the area.

The resumption of the Israel-Hamas war fuelled the bullish momentum for oil prices, CMC Markets analyst Tina Teng said.

“However, oil prices may continue to be under pressure for the time being due to China’s disappointing economic recovery and the ramp-up of US production,” Teng said.

US oil rigs rose five to 505 this week, their highest since September, energy services firm Baker Hughes (BKR.O) said in its closely followed report on Friday.

On Russian oil, western countries have stepped up efforts to enforce the $60 a barrel price cap on seaborne shipments of Russian oil it imposed to punish Moscow for its war in Ukraine.

Washington on Friday imposed additional sanctions on three entities and three oil tankers.

Separately, the White House said on Friday it was prepared to “pause” sanctions relief for OPEC member Venezuela in coming days unless there is further progress on the release of Venezuelan political prisoners and “wrongfully detained” Americans. Meanwhile, India has resumed Venezuelan oil purchases.

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