By Barani Krishnan
Investing.com -- OPEC+ might be holding the reins to global oil supply, but it’s the bears in the market who seem to be prevailing in setting crude prices lately — no thanks to China’s Covid situation.
London-traded Brent, the global benchmark for oil, broke below $90 per barrel for the first time since October while New York traded West Texas Intermediate crude was less than $2 above the key support of $80 per barrel amid little regard for the sharp production cuts enforced from this month by the Organization of the Petroleum Exporting Countries and its allies.
OPEC+, led by Saudi Arabia with help from Russia, said the 23 nations in its coalition would impose a 2 million barrel production cut from this month — its most in two years since oil prices began recovering from the worst effects of the coronavirus pandemic.
OPEC+’s motive was to offset constant worries about oil demand that had crept up in recent months as global economies sent off recession signals from runaway inflation in the aftermath of the pandemic. Crude prices hit 14-year highs in March, with Brent just shy of $140 and WTI tipping just over $130. By September though, Brent had fallen to around $82 and WTI to around $76.
The OPEC+ ordered production cuts sent Brent up again almost $100 two weeks ago and WTI reached above $93.
But Covid headlines out of China zapped the rebound, driving both benchmarks forcefully lower over the past fortnight.
In Thursday’s session, WTI for delivery in December was down $3.59, or 4.2%, at $82 per barrel by 12:20 ET (17:20 GMT). The U.S. crude benchmark was down 7.7% week-to-date, extending last week’s 4% decline.
Brent was down $2.80, or 3%, at $90.06. The global crude benchmark fell 6.2% on the week after last week’s tumble of 2.6%.
“Oil prices are getting punished as crude demand concerns show no signs of easing,” said Ed Moya, analyst at online trading platform OANDA. “The world’s two largest economies are struggling here as China battles COVID and the U.S. is seeing a significant drop with manufacturing activity.”
China’s new case total rose above 23,000, which is the highest level since April and is approaching its record high. Fears are growing that the spread won’t ease soon as cases have spread across the populous Chinese regions of Guangzhou and Chongqing.
In the United States, a gauge of manufacturing activity in the U.S. mid-Atlantic region fell unexpectedly this month to its lowest level since 2011 as firms reported continued softness in new orders and a weak outlook.
“Some of the geopolitical risk that sent oil higher earlier this week is coming off the table,” Moya added. “With no immediate escalation in the war in Ukraine, we could see energy traders fixate on the Russian crude price cap that takes hold early next month.”
Technical charts indicated more weakness ahead for WTI and Brent, said Sunil Kumar Dixit, chief strategist at SKCharting.com.
“WTI’s sharp drop from $85.42 to $81.64 has left it oversold on a daily time frame,” said Dixit. “Nonetheless, there is potential for further drop, which is limited to the 100-week Simple Moving Average of $81.05 which is likely to act as support even if temporary. In the event of extended sell off, the weekly lower Bollinger Band $77 may be in focus.”
He said Brent had somewhat similar oversold conditions on daily stochastics as in WTI, with room for a little more drop.
“A sustained break below $90 may extend Brent’s correction to the monthly Middle Bollinger Band of $87.97, whereas break below previous month's low $86.35 will open an extended drop to the 100-week SMA of $84.80.”