Oil prices stabilize as economic worries offset supply problems

LONDON (Reuters) – Oil prices stabilized on Tuesday as the market balanced OPEC+ production quota cuts amid fears of an economic slowdown and lower Chinese demand for fuel.

Brent crude futures were down 7 cents, or 0.08%, at $91.55 a barrel by 1127 GMT, while US West Texas Intermediate crude futures were down 12 cents, or 0.14%, at $85.34.

WTI had earlier risen by more than $1 a barrel due to a weak dollar, making oil cheaper for buyers holding other currencies.

But the US dollar index, which measures the greenback against six peers, rose later in the session, affecting oil prices in European trading.

Also in focus was the Bank of England’s plan to start selling the huge government bond holdings it had amassed during the coronavirus crisis. This resulted in higher long-term returns, indicating increased risks to financial stability.

Meanwhile, expectations for fuel demand in China weighed on sentiment after the world’s largest importer of crude oil delayed the release of economic indicators that were due to be published on Tuesday. No date has been set for the rescheduled release. Read more

On the supply front, a preliminary Reuters poll on Monday showed that US crude oil inventories are expected to rise for the second week in a row.

The Energy Information Administration said production in the Permian Basin of Texas and New Mexico, the largest US shale oil basin, is expected to rise by about 50,000 barrels per day to a record 5.453 million barrels per day this month.

ANZ Research analysts said in a note that some of the price support came from investors who increased their long positions in futures contracts after cutting 2 million barrels per day to production targets agreed by OPEC+.

Several members of the oil production group supported the cut after the White House accused Saudi Arabia of forcing some countries to support the move, a charge Riyadh denies.

“Although the production cut is not actually likely to be even half that high, the US government considers it an insult… The question now is how the US will react, as this could have a far-reaching impact on the oil market.” Commerzbank said in a note.

Sources told Reuters on Monday that the Biden administration plans to sell oil from the Strategic Petroleum Reserve in a bid to cool fuel prices ahead of next month’s congressional elections.

(Reporting by Rowena Edwards) in London Additional reporting by Isabel Qua in Singapore Editing by David Goodman

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