Oil declines as slowdown concerns vie with Russia supply cutback

Oil retreated as concerns about slowing global growth offset Russia’s plan to curb supply in retaliation for western sanctions.

West Texas Intermediate fell below $79 a barrel after soaring by more than 8% last week. Although Moscow will reduce supply by half a million barrels a day in March as curbs on flows tighten, investors remain wary that the Federal Reserve needs to keep pushing interest rates higher to tame inflation. The Fed’s drive has weighed on the appetite for risk assets including commodities.

 

The White House said Russia’s plan to slash oil output, which was announced on Friday, showed the extent to which President Vladimir Putin is willing to use resources like energy as a weapon. Despite the move, Moscow’s partners in the OPEC+ coalition signalled they won’t boost production to fill in for the cutback.

Oil has had a bumpy start to 2023 as investors contend with the continued fallout for the energy market from the war in Ukraine, as well as the impact from China’s reopening after Covid Zero curbs were dropped. Last week, Saudi Arabia raised prices for Asian buyers, signalling it’s optimistic about demand. In addition, there has been a host of minor supply disruptions in Europe.

“The slowdown of global growth will be on investors’ minds as we push through 2023 but the challenge is trying to balance that with a China recovery,” said Warren Patterson, head of commodities strategy at ING Groep NV. “We are seeing some profit-taking after the scale of the move last week.”

Prices:

• WTI for March delivery lost 1% to $78.94 a barrel on the New York Mercantile Exchange at 11:55 a.m. in Singapore.
• Brent for April settlement shed 0.9% to $85.64 a barrel on the ICE Futures Europe exchange.
• Investors have been reassessing prospects for how much higher US borrowing costs will likely go this year after a run of robust data, coupled with Fed policymakers warning that there’s scope for further tightening. Key inflation figures due on Tuesday will shape the next stage of that debate.
• In addition in the oil market, both the Organization of Petroleum Exporting Countries and the International Energy Agency are due to release monthly market reports on Tuesday and Wednesday, respectively, offering them an opportunity to comment on the impact of Russia’s supply cutback.

“In the short term, I suspect prices are going to remain fairly range-bound due to the first-quarter surplus,” Patterson said. “As we approach mid-year, we expect the market to tighten, which should push prices toward $100.”

© 2023 Bloomberg