After the OPEC production cut, crude oil gains continue; API data is forthcoming
Following OPEC+’s unexpected move to reduce its production levels, oil prices increased on Tuesday, adding to the significant gains made the previous session.
U.S. oil futures were trading 1.4% higher at $81.51 per barrel as of 09:05 ET (13:05 GMT), while the Brent contract was up 1.1% to $85.89 per barrel.
After the Organization of the Petroleum Exporting Countries and its allies, which includes Russia, announced over the weekend additional production cuts of just over 1 million barrels per day from May through the end of 2023, both benchmarks increased by more than 6% on Monday.
Market participants have been betting that as Chinese demand, the world’s largest importer of crude, is anticipated to grow rapidly and completely emerge from the constraints it imposed on itself with its zero-COVID policy, the oil market will tighten.
As the economies in Europe and the United States contract because of additional central bank tightening, this growth is anticipated to more than balance a slowdown in Western demand.
German exports increased considerably more than anticipated in February, posting their largest rise in ten months, giving this theory a boost on Tuesday.
According to Thomas Gitzel, chief economist at VP Bank, “the exports business is benefiting from better-functioning supply chains and the opening of the Chinese economy.”
OPEC stated over the weekend that the action was “a precautionary measure aimed at supporting the stability of the oil market,” but analysts at UBS believe it may have been more of a shot at crude short sellers than anything else.
According to a note from UBS, it was “possible that the surprise cut was intended to clear the build-up of short futures and options positions in recent weeks.”
However, as the turmoil in the financial sector subsided, many had already unwound a significant portion of their short positions.
Following last week’s decline of more than 6 million barrels, the American Petroleum Institute will release weekly statistics on U.S. crude stocks later in the session.
