By Peter Nurse
Investing.com -- Oil prices traded in a mixed fashion Tuesday as traders digested concerns of demand destruction caused by weaker global growth as well as the OPEC+ cut in output levels.
By 09:05 ET (13:05 GMT), U.S. crude futures traded 1.2% higher at $87.88 a barrel, while the Brent contract fell 1.7% to $94.10.
Both contracts surged nearly 3% on Monday, but there was no U.S. settlement on Monday, the U.S. Labor Day holiday.
Oil prices have been on the wane over the past three months or so, weighed by concerns that interest rate rises and COVID-19 curbs in parts of China, the world's top crude importer, may slow global economic growth and cool oil demand.
The main districts of Chinese tech hub Shenzhen shut down public transport on Friday, adding to the southwestern city of Chengdu, which put its 21 million people under lockdown on Thursday, as China battles COVID-19 outbreaks across the country that have dampened the outlook for economic recovery in the second largest economy in the world.
Also weighing on sentiment is the likelihood that the European Central Bank will hike interest rates again on Thursday as it tries to combat inflation at historic highs, with a likely impact on growth in the region as it struggles with sky-high energy prices.
European Union energy ministers are set to meet later this week to discuss extraordinary measures to curb surging energy prices, including potentially setting a limit on the price of Russian natural gas.
However, a wide-scale demand reduction would be the only feasible short-term solution to Europe's power crisis if Russia cuts off all gas supply, according to a senior executive at Norwegian energy giant Equinor.
These concerns have tended to overshadow the short-term gains seen Monday after the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, decided to reverse the 100,000 barrel a day increase to their production plans they had agreed only a month earlier.
Given that the group’s actual output is currently some 2.9 million barrels below target, it’s not clear what effect the quota cut will have.
“Most producers have not been able to hit their targets and are producing quite some distance below where they should be,” analysts at ING said, in a note. “It is only Saudi Arabia, the UAE and Kuwait that have been producing at or near their agreed output levels.”
“Fundamentally this changes little in our supply and demand balance, and we will be keeping our oil price forecasts unchanged for the remainder of this year and 2023.”