Oil futures struggled for direction on Monday, with U.S. prices moving up, but global benchmark prices trading mostly lower as China data raised worries about demand from the world’s largest crude importer, but last week’s OPEC+ decision to reduce production continued to provide some support.
West Texas Intermediate crude for November delivery
rose 20 cents, or 0.2%, to $92.48 a barrel on the New York Mercantile Exchange. The front-month U.S. benchmark contract rose 15% last week.
November natural gas
edged up 1.5% to $6.846 per million British thermal units.
Analysts tied weakness in crude to the September reading of the Caixin service purchasing managers index for China released over the weekend, which fell to 49.3 versus a reading of 55 in August, dragged down by lockdowns aimed at containing the spread of COVID-19. A reading of less than 50 indicates a contraction in activity.
“China’s service sector activity contracted for the first time in four months in September, as COVID restrictions dented already weak demand,” StoneX’s energy team in Kansas City wrote in Monday’s newsletter.
Crude rose sharply last week, however, after dropping to eight-month lows in September. That rally came as the Organization of the Petroleum Exporting Countries and their allies, known together as OPEC+, agreed to cut production by 2 million barrels a day beginning in November.
Though the actual cut is expected to be around half that size, since several members were already producing below their targets, it underlined worries about tight supplies. Crude had previously been under pressure on fears aggressive rate increases by the Federal Reserve and other major central banks would spark a sharp global economic downturn.
“The cut is clearly bullish,” said Warren Patterson, head of commodities strategy at ING, in a Monday note. “However, there is obviously still plenty of other uncertainty in the market, including how Russian oil supply evolves due to the EU oil ban and G-7 price cap, as well as the demand outlook given the deteriorating macro picture.”