Demand Concerns Drag Oil Prices Lower

• Oil prices fell early on Wednesday morning as weaker than expected economic news from China and continued concerns of demand destruction.
• The OPEC+ decision to cut production sent oil prices higher on Monday, but the group’s inability to hit its quota means the impact of the decision was brief.
• Saudi Arabia’s decision to cut its prices for Asian and European buyers for October deliveries further highlights demand weakness in the market.

Oil demand concern and weaker than expected economic news from China have reversed the gains oil prices booked on Monday after OPEC+’s meeting, with both Brent crude and WTI opening trade on Wednesday with losses.

Brent, the international benchmark, slipped from $92.83 per barrel at the end of day Tuesday to $91.72 per barrel at the time of writing, down by more than a percentage point.

West Texas Intermediate was down from $86.88 per barrel at close on Tuesday to $85.62 per barrel in early trade on Wednesday.

"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," PVM oil analyst Tamas Varga told Reuters.

“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,” FGE president Jeff Brown told Bloomberg following the OPEC+ meeting.

“OPEC is essentially signaling that we don’t like US$90 a barrel. They’re pretty much at production limits, so let’s defend a high price,” he also said.

It seems the decision to cut production by 100,000 bpd, however, was not enough to prop up prices under the pressure of demand destruction concerns amid continuing Covid lockdowns in China.

Also, the market may have already factored in the production curb, which would hardly even need to materialize: OPEC+ has been undershooting its production quota by more than a million barrels daily over the past few months.

In the latest sign that demand concerns have a solid foundation, Saudi Arabia, OPEC’s largest producer, said it would cut its prices for Asian and European buyers for October deliveries, after hiking them to record highs earlier this year.

By Irina Slav for Oilprice.com

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